What Should You Do With Your Social Security Check First?
It is essential to prepare how you will supplement your income and spend your money throughout your golden years, whether you are 20 years old or 10 years away from retiring.
This requires many soon-to-be retirees to make a strategy for their Social Security payments.
According to the Bureau of Labor Statistics 2019 Consumer Expenditure Survey, between 2016 and 2020, Americans aged 65 and over spent an average of $48,791 yearly on necessities such as food, housing, transportation, and healthcare.
However, the average monthly Social Security payment for retired workers is $1,619.67, or $19,436.04 per year. If you expect to rely solely on Social Security, you will rapidly learn that this sum is likely insufficient to cover your retirement expenses.
Nevertheless, you should not waste your Social Security check. Therefore, it is essential to budget properly and spends your advantages prudently. Continue reading to learn more about how to manage your Social Security check.
Even though you just turned 62 and are eligible for Social Security retirement benefits, it is crucial to remember that you are not required to begin receiving them immediately.
In fact, for some individuals, waiting an extra eight years is financially prudent.
Why would somebody delay receiving benefits to which they are entitled? Simply put money. The lengthier the delay, the greater the monthly payment.
For those born after 1943, Social Security payments increase by 8% per year for each year of deferral after age 62, up to age 70.
If you don’t need the money immediately and have other sources of income or savings, do the arithmetic to determine if it makes sense to wait longer to cash your checks.
- Six Social Security Changes Are Expected in the Coming Year
- Do Not Claim Social Security Benefits Until You Reach This Age, No Matter Your Age
Check Your Income Record
The Social Security Administration calculates your Social Security benefit based on your greatest 35 years of earnings.
Because any record can contain mistakes or gaps, you should double-check your Social Security income record before applying for benefits.
If the Social Security Administration fails to recognize one or two of your highest-earning years, for example, your payment could be permanently decreased.
Create an account to validate your Social Security record. This is where you may view your earnings history as well as other crucial information such as your projected future retirement, disability, and survivor benefits.
If you discover any errors, please call the SSA at 1-800-772-1213.
Make a Budget for Your Social Security Check Each Month
According to Kimberly Foss, certified financial planner and founder of Empyrion Wealth Management, the first thing retirees should do with their Social Security check confirms they received the exact amount.
After you’ve confirmed that your payment is correct, it’s time to appropriately budget it.
Before spending your Social Security benefits, Bill Kearney, CEO of Integrated Financial Concepts, suggests making a spending plan. Here’s how it’s done:
- Examine your monthly expenses, such as rent or mortgage payments, food, healthcare, debt, and other living expenses.
- Calculate predicted revenue and where it will come from.
- Match your expenses to your anticipated income streams. In other words, calculate the difference between your Social Security income and your pension or withdrawals from retirement savings.
Maintain Your Earnings
You must keep track of your outside earnings if you want to maximize your Social Security payments. If you are under the age of full retirement in 2022, your Social Security payment will be cut by $1 for every $2 you earn above $19,560.
If you reach full retirement age in 2021, your pension will be lowered by $1 for every $3 you earn above $50,520 until you reach full retirement age in the following month.
There is no Social Security payment that decreases once you reach full retirement age.
Prioritize Your Basic Necessities
Then it’s time to divide your Social Security benefits. According to Leonard Hayduchok, CEO and president of Dedicated Financial Services, you should approach your Social Security check like a paycheck.
Use the benefits to cover recurring expenses such as housing and groceries. According to the BLS survey, individuals 65 and older spend the following amounts per year on food and related housing expenses:
- $17,472 for housing
- $3,810 for utilities
- Food: $6,599
You should strive to set aside 60% to 70% of your annual Social Security benefits to cover these costs, however, this may be difficult for many retirees.
If your yearly benefits match the national average of $1,619.67 per month or $19,436.04 per year, 60% of your Social Security check — $11,633.83 per year — will not be adequate to satisfy the expenses listed above.
Still, it’s a good idea to put as much money as you can towards food and shelter. After all, these are your essential needs; without them, you would not be able to live well.
Keep in mind that once you’ve used your check to cover these essential bills, you’ll most likely need to tap into your other sources of income to cover other costs.
Retirees whose food and housing costs exceed their Social Security benefits should search for strategies to reduce these costs. One option is to relocate to a city where you can live comfortably on Social Security.
- Five Florida Locations Where You Can Simply Live Off of Social Security
- Beware of These Three Social Security Frauds – How to Protect Yourself
Use Your Social Security Checks to Pay for Medical Expenses
After you have budgeted for your basic needs, you should pay for your medical bills. Assume you’ll spend about the national average for Americans 65 and older, which the BLS estimates at $6,833 per year.
If you spend close to this amount, it’s a good idea to put the rest of your paycheck toward this item. However, it is also critical to plan for rising healthcare costs that your Social Security cheques will most likely not cover.
According to HealthView Insights’ 2021 Retirement Health Care Costs Report, a healthy, national average couple 65 or older spent an average of $662,156 on retirement health care in 2020.
In 2021, most 65-year-old couples spent between $156,208 and 1,022,997 on healthcare, depending on where they retired and the sort of care they required.
Put Whatever Money You Have Left in Your Savings Account
After paying for basics and healthcare, you may be left with only a few hundred dollars each year if you receive the average retirement payout. So, what should you do with your extra cash?
Prosperity Financial Group president Edwin Cruz advises his clients to set aside 10% to 20% of their Social Security benefits to meet the unexpected.
He also suggests gradually increasing this amount until the retiree has six to nine months of living expenses saved up.
Following this plan, and assuming you receive the average retirement payout, you should strive to save at least $1,825.91 per year until you have six to nine months of emergency savings.
However, because you’ve previously spent your Social Security payments to meet other high-priority costs, you’ll most likely need to supplement your income to develop an emergency fund.
Don’t Forget to File a Claim for Your Children
If you are claiming retirement, disability, or survivor benefits and have dependant children, you can also file a claim for them. A qualifying child can receive up to 50% of a parent’s full retirement or disability benefit, and up to 75% of a deceased parent’s benefit.
The maximum amount that can be paid to a family, however, is calculated as part of every Social Security benefit computation.
To qualify, a kid must be under the age of 18, 18-19, and enrolled full-time in grade 12 or below, or 18 or older with a condition that began before the age of 18.
Although this is not your Social Security income, it is still an SSA payment that can help your family make ends meet.
Don’t Forget to File a Claim for Your Children
If you are claiming retirement, disability, or survivor benefits and have dependant children, you can also file a claim for them.
A qualifying child can receive up to 50% of a parent’s full retirement or disability benefit, and up to 75% of a deceased parent’s benefit. The maximum amount that can be paid to a family, however, is calculated as part of every Social Security benefit computation.
To qualify, a kid must be under the age of 18, 18-19, and enrolled full-time in grade 12 or below, or 18 or older with a condition that began before the age of 18. Although this is not your Social Security income, it is still an SSA payment that can help your family make ends meet.