By Barbara Friedberg
May 11, 2016
Bill and Linda are in their golden years, and they each receive the average Social Security payment
of $1,335 per month for retirees. A monthly check of less than $1,500 per person might not seem like a lot, but it’s imperative that retirees budget it wisely — especially if their spending is on par with the national average.
The average 65-to 74-year-old spends $46,757 per year on food, housing, transportation, healthcare and
more, according to the latest available data from the Bureau of Labor Statistics. But, the average
spending of $46,757 per year is $14,717 greater than the average Social Security annual benet of
$32,040 (for two people).
Since Bill and Linda only receive $32,040 per year in Social Security beneits, they need to figure out how
to budget their Social Security checks in retirement — and make sure they have additional sources of
income. They’ll quickly realize that Social Security won’t be enough to cover all of their retirement costs.
First Thing to Do With Your Social Security Check
Kimberly Foss, certified financial planner and founder of Empyrion Wealth Management
(http://www.empyrionwealth.com/), said the first thing retirees should do with their Social Security
check is to confirm that they received the correct amount — before they cash the check. This one step
can protect you from underpayments or overpayments, the latter of which would need to be repaid in
How to Budget Your Monthly Social Security Checks
After you confirm that your Social Security check is accurate, it’s time to budget it properly. Bill Kearney,
owner of Integrated Financial Concepts recommended creating a spending plan before spending your Social Security checks. Here’s how:
Assess your expected expenses, including rent or mortgage payments, food, healthcare, debt and
other living expenses. Tally expected income and where the income will come from.
Match up your expenses with your expected income sources. In other words, figure out what your
Social Security payments cover versus your pensions or withdrawals from retirement accounts.
Now, you’re ready to allocate your Social Security benefits. Len Hayduchok, president of Dedicated
Financial Services, suggested treating your Social Security check as you would a paycheck: Use the benefits to pay for regularly occurring expenses, such as housing costs and groceries. Once you’ve used up the check to cover these expenses, you’ll likely need to dip into your additional income sources to cover other costs.
1. Use 60%-70% to Cover Your Basic Needs
Back to Bill and Linda, who receive the annual joint $32,040 Social Security benefit.
First, the couple should allocate about 60 percent to 70 percent of their annual Social Security benefits
to pay for food and housing expenses. These are their basic needs — without them, they won’t live well.
So, Bill and Linda spend $21,659 of their Social Security checks on the essential food and housing — the
same amount their age group spends on these two categories in a year, according to the BLS.
For retirees with more food and housing expenses that their Social Security checks won’t cover, it’s
helpful to look for ways to cut back on these major expenses.
2. Save About 20%-25% for Healthcare Expenses
After budgeting about 67 percent to cover basic needs, Bill and Linda only have $10,381 left in annual
Social Security benefits. Next up: Saving money for medical expenses. The 2015 Health Care Costs Report by HealthView Insights recently reported that the average 65-yearold couple can expect to spend $6,999 per year on healthcare, whereas the average 70-year-old pair will spend $8,498. This number tends to rise with advancing age.
For Bill and Linda, their annual healthcare costs follow the average at approximately $7,748 per year
— the average of the 65- and 70-year-olds’ annual cost. This is a bit less than one-fourth of their $32,040
annual Social Security check. Experts would advise the couple to look for ways to save money on their
healthcare expenses by comparing healthcare plans and living a healthier lifestyle.
3. Use the Rest for Transportation — and Tap Into
Just because you’re retired, that doesn’t necessarily mean you’re going to be in the house all day.
Whether you drive five minutes down the street every week to pick up groceries or across the country to
visit grandchildren once a year, you’ll likely have transportation expenses.
Bill and Linda live in a small city and don’t put on excessive miles. They’ve also downsized to one car. So
although the national transportation average for their cohort group is $7,972, according to the BLS, they
manage to keep their transportation expenses below the norm at $3,986 per year.
But that nearly $4,000 expense is more than they have left over in their Social Security checks. So, Bill
and Linda will need to find an extra $1,353 to cover this cost. Luckily, they receive an additional $15,000
per year from pensions and other retirement accounts.
Other Expenses You’ll Need to Cover in Retirement
For many people, their Social Security checks will not be enough to cover all of their retirement costs,
which is why it’s always recommended that retirees find supplemental income sources to offset their
expenses. Here are three additional expenses you’ll need to cover — likely without the help of Social
Savings and Emergencies
Your earning years are over. So, when your car needs a repair or you need a new washing machine, you
need to be prepared and build an emergency fund, tells clients to set aside 10 percent to 20 percent of their Social Security checks to cover the unexpected. And, he recommended adjusting this amount over time until the retiree has six to nine months of living expenses built up.
Following this strategy, that means Bill and Linda should save at least $3,204 each year until they
reached their six to nine months’ worth of emergency savings. But since they’ve already used their Social
Security checks to cover their other high-priority expenses, they’ll need to tap into other income sources
to build an emergency fund.
Paying O Debt
Although the historical opinion is to retire debt-free, this isn’t a reality for everyone. Many retirees are
spending their retirement years with a fair amount of debt, reports Money magazine.
Jakob C. Loescher, CFP at Savant Capital Management advises retirees not to attempt to be debt-free. “A retiree should be mindful of bad debt, of course, and pay off higher interest rate debts (e.g., credit cards),” he said. “But be careful not to ‘sell the farm’ and pay off otherwise cost/tax-efficient debt, like mortgages and home equity loans.”
After adding up the essentials — food, housing, transportation, emergency savings, debt and healthcare
— you should have money to spend on fun things such as hobbies and traveling. Fortunately for Bill and
Linda, their additional $15,000 in retirement income helps them cover recreational expenses and the
Retirees need to be mindful of how they allocate their retirement spending. They should also take taxes
into account. Depending on your situation, you might have to pay federal income taxes on your Social
Security benefits, which can make it even harder to cover retirement expenses. But if you can cut back on
your housing and fixed expenses, as well as find ways to make money, you should be able to have a