With so many Americans surviving solely on their Social Security benefits income, options get tougher.
Can we survive on just Social Security benefits? A lot of baby boomers that are at or nearing retirement are about to find out.
The age of the pension plans, unless you’re a government employee, are a primarily practice of the past. Right now, the Social Security Administration reports that nearly two thirds of those 65 and older get more than half of their income from Social Security.
There are plenty of older Americans who have put themselves in a good position for when they retire. One estimate says those between 60 and 64 have more than $350,000 in IRAs and 401(k). But with more than 80 million workers not covered by any retirement plan, plenty will have to rely on Social Security, unless they want to keep working part-time. The Social Security Administration reports the average monthly benefit is just below $1,300 a month, which equates to about between $15,000 and $16,000 a year.
The Washington, D.C.-based Employee Benefit Research Institute reports of those people 65 and older who fell in the lowest 60 percent of incomes, relied on Social Security for 88 percent of their income in 2010. That’s not going to go very far unless you live in a low-cost part of the country, says Jim Blankenship, a central Illinois-based financial planner and expert on Social Security. That may mean less urban and rural areas where the cost of living is lower and inflation won’t rise as much, he says.
If you rely on Social Security, it’s important that a home and car is already paid for because there won’t be as much need for cash, especially if they’re living in low-cost areas, Blankenship says.
“There are folks that are capable of doing it, but it’s not a lot of money on average,” Blankenship says. “The ones I have come across weren’t living on cat food, but at the same time they weren’t living high on the hog either.”
Nearly three of four people take Social Security before their full retirement age. Since some people have no option but their Social Security when they retire, it’s best to wait as long as possible to claim the benefit rather than take it at age 62 when they’re eligible or at their full retirement at 66. The monthly benefits increase by 72 percent by waiting until age 70 but many people don’t choose that option.
“If all they have is Social Security, they’re going to have to work,” Blankenship says.
Where he’s based near the Illinois state capital in Springfield, Blankenship says many government employees have pensions that will supplement their Social Security if they have it. But there are plenty of people who are vulnerable or have been vulnerable because the companies they worked for that provided pensions aren’t coming through with that promise to pay, he says. Many folded or were bought out, and the individuals are left “holding the bag.”
“All they have left is Social Security, and maybe they didn’t plan well enough in advance after promises made to them a long time ago didn’t come to fruition,” Blankenship says.
Even among many people who have done some retirement savings with an IRA or 401(k), many have less than $25,000, Blankenship says. The current generation of baby boomers is more attuned to setting up such accounts, but they’re going to face greater difficulty than previous generations, he says.
“On the one hand they may be better prepared in terms of things they set aside on their own as a class of people, but on the other hand, the parents of the baby boomers were a little bit more self-reliant. They were able to get by on far less and not rampant consumers like the current baby boomer generation,” Blankenship says.
The one concern for the baby boomers going forward is what’s going to happen to them as they age and they live longer than previous generations, Blankenship says. In the past, many of those who lived to be elderly lived with relatives who cared for them until they died or needed hospitalization. With families spread today and society changed from where it was in the 1960s and 1970s, the baby boomers will have to turn to institutionalized care in greater numbers.
“Family members helped take care of people late into their 80s, 90s and even 100s, but that’s on the wane, and they’re going to have to turn to institutionalized care,” Blankenship says.
That means many baby boomers will turn to Medicaid to cover their medical expenses beyond what would be covered by Medicare.
“I think what we’re seeing now is only going to get worse where we have more folks relying on Medicaid,” Blankenship says. “The folks who get in this position that their only source of income is Social Security—and their only other asset may be their home—it may come down to who’s going to pay for their medical care as they age.”
Keep checking back here at CompleteSenior.com in the next 30-45 days as we will have developed the most advanced and comprehensive Social Security Report available anywhere online that will show you the best way to receive the most income from Social Security.