5 Ways To Budget for Retirement So You Can Invest Your Social Security Payouts
Written by
Josephine Nesbit
Edited by
Zuri Anderson
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Social Security benefits play an important role in retirement income. But for retirees who may not need some or even all of their benefit, it still has value – especially if you plan to invest your payouts.
According to the Social Security Administration (SSA), the average Social Security check for a retired worker in January 2025 was $1,976 per month, which breaks down to about $23,712 annually.
If you plan to put that money toward investments rather than everyday expenses, it requires a budget and a plan for retirement. Here’s how you can budget for retirement so you can invest your Social Security payouts.
Reduce Expenses Before Retirement
Lower your fixed monthly expenses as much as possible before retiring. This could be paying off your mortgage or moving to a smaller, more affordable home and reducing your discretionary spending. Paying any additional debt, such as credit cards, student loans, car loans or personal loans.
Moving to a state or area with lower taxes and a lower cost of living could also help you free up extra cash to put into your retirement savings.
Invest Through Tax-Advantaged Retirement Accounts
Putting your money in tax-advantaged retirement accounts, like an IRA, 401(k) or Roth accounts, can minimize your tax burden while maximizing your returns.
For example, you can fund a Roth IRA with after-tax dollars, earn dividends and generate capital gains tax-free. You won’t pay taxes on your qualified withdrawals. This may be a good idea if you anticipate your income increasing after retirement.Â
If you expect your income to decrease after you retire, then consider investing in a tax-deferred retirement account, like an IRA or 401(k). You can fund your account with pre-tax dollars and pay taxes when you withdraw your money. At that point, your distributions are taxable but are taxed at a lower tax rate.
One of the best things about investing in retirement accounts is compound interest. The earlier you save, the greater your long-term growth potential. This can help you avoid making large catch-up contributions as you near retirement.
Plan for Healthcare Costs
Use a Health Savings Account (HSA) before retirement to cover out-of-pocket health expenses — co-insurance, copayments, deductibles and qualified medical expenses — on a pre-tax basis. Contributions to an HSA account can also be invested and grow tax-free.
According to Bank of America’s 3Q 2024 Participant Pulse study, the average HSA account balance at the end of Sept. 2024 was $5,130, up from $4,930 in 2Q.
Maximize Other Income Sources
Look into additional sources of income to help fund your retirement years and allow you to invest your Social Security checks. You can rent out property, downsize and sell items you don’t want or need or start a side gig to supplement your income.Â
Use the 4% Rule
The general rule of thumb is to withdraw 4% of your retirement savings in the first year of retirement and then adjust for inflation each year afterward. This allows for safe withdrawals from your retirement portfolio to cover expenses over the next 30 years, although it’s not a guarantee.
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