I Wondered, Could We Live On Social Security Alone? 

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I take great pride in the way we chose to live a frugal life so that we could retire early. It not only allowed us to save a higher percentage of our income when we were still working, but also resulted in needing a smaller portfolio capable of supporting us. I wondered at this time when many people have little to no retirement savings, even with our frugality, whether we could retire and live on Social Security alone.

Of course frugality is subjective and personal. It is also unique to all kinds of parameters. Frugal living in Colorado is different than it is in California. I was a little surprised at where we stood with what many say is impossible to do without severe lifestyle deprivation. I agree it seems challenging. But many people find a way to pull it off out of necessity and unfortunately for some it’s done with a dose of desperation.

I Wondered, Could We Live On Social Security Alone? 

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Can We Live On Social Security Alone?

The first obvious requirement to meet before answering this question is knowing exactly how much our retirement lifestyle costs. Since I retired early over 13 years ago, our retirement budget is clearly known. 

As I will soon hit age 65 and Medicare eligibility, we will see significant healthcare cost reductions. We do have to make some assumptions as to the advanced cautioned property tax, homeowners insurance, and auto insurance increases coming on the next renewal. That said, we can come close to setting a realistic retirement lifestyle budget going forward. We do have many years of retirement budget history behind us.

OK frugal retirement lifestyle, where do you stand against our ability to live on Social Security alone? Close but no cigars

Starting With Our Numbers

Neither my wife or I are yet at full retirement age. When looking at  Social Security estimates for age 65, we could expect a combined yearly benefit of $50,100. Is it enough? It could be in many parts of the country, but we live in a beautiful but higher cost area

Even with our own flavor of frugality, based on our well honed retirement lifestyle and anticipated budgetary changes we do come up short. About $9,600 a year short. That’s without cutting anything from our already defined frugal lifestyle. An enjoyable lifestyle that happens to come in below half the local median household income for where we live.

Based on this shortfall and a commonly followed 4% withdrawal rate, the down and dirty calculation for our portfolio needs to close the gap on this Social Security alone challenge is $9,600 X 25 = $240,000. Still a tidy sum for many to attempt reaching, but that portfolio savings amount is in line with what a 2022 Vanguard study found for people today between the age of 55 and 64 regarding retirement savings. Their study came in at an average savings of roughly $256,000. That amount can provide $10,240 a year of available retirement funding based on a 4% withdrawal rate.

Fortunately our Social Security Alone failure isn’t detrimental. 

I did this exercise out of curiosity. Our portfolio has things covered if we didn’t want to make any retirement lifestyle changes to line up closer to living on just Social Security. 

That doesn’t mean we won’t cut back. We’ve already begun to see budgetary places where we won’t spend as much going forward very much longer anyway. We’ve constantly experienced changes in our attitudes about things over the years of our retirement. 

We only come this close to being able to consider living on Social Security alone because we paid off our mortgage over an 18 year period several years ago. We bought our modest older home when I was corporately forced to relocate to remain employed midway during my primary career. It was a bad job market so we bit the bullet. Having mortgage obligations in retirement would certainly make this task far more challenging if not impossible. 

Prior to retiring we did a lot of necessary things to get this close to living on Social Security alone. We paid off all debt and stayed out of debt. We also created a frugal yet rewarding lifestyle by cutting all spending waste while prioritizing what is important to us. 

A few more tweaks and possibly our consideration of some other moves could get us to living on Social Security alone without any reliance on savings or feeling like we are living a deprived life.

A few retirement budget and income strategies come to mind that are worth considering  –

Delay Starting Social Security 

This exercise I just did is based on claiming my Social Security at age 65, not FRA or age 70. Social Security would be higher by holding off. Any increase in received Social Security payments not only narrows any retirement budget shortfall but also for someone who is still employed there’s added time to increase retirement savings. 

Being that I’m already retired, delaying Social Security would mean relying on my portfolio to carry the load a little longer and possibly having less to work with later. It’s all the things that need to be considered. It is always best to run the different scenarios against a good retirement calculator

Move Somewhere Cheaper

Where we live plays a big role in our retirement cost. Being open to moving to a different town, city, state, or even country can play a role in reducing retirement costs. We do love where we live. Being close to our children and grandkids is important to us. However, we would consider moving somewhere different if staying here meant not being able to afford our desired retirement lifestyle.

Tap Home Equity

We’ve all seen the commercials on TV about Reverse Mortgages. It’s a way to use home equity to help fund retirement. It isn’t high on my list because of the high costs associated with doing this. That and the restrictive rules that can jam you up if you run afoul of them. But it’s something that can be considered if the worst financially happened to us.

Rent Out A Room

We are like many retirees who now have empty bedrooms that have been converted to exercise rooms, offices, and storage that can be changed back. It provides the option to rent out a room or two for retirement income in this high rental cost housing market. 

Apply For Senior Benefits

Aside from getting discounts at restaurants and hotels, there are some senior discounts that we have to apply to get. For example, we did apply to receive a senior property tax break. We meet the age and requirement of living in our home at least 10 years. This is a regional type benefit that is worth looking into to find out what the benefit is and what rules must be met. Our savings are yet to be determined since the huge jump in property tax appraisals over the last couple of years also takes effect this year. 

Cut Transportation Related Costs

I have a problem, a car problem. I just love cars and have been active in the hobby for most of my life. I’d consider cutting back on my automotive hobby and shave down auto insurance costs. That and bank the money received in a sale of one of my babies. 

We do see our world shrinking. There are far more opportunities to use our bicycles to get to town venues, cafes, and shopping. Although it is limited to weather and seasonal conditions. Aside from that, there’s always a way to become a single car household if we need to cut expenses.

Start A Retirement Gig

One of things many retirees find themselves doing is returning to a little retirement gig for the social aspects and earning a little extra to get by. Nothing wrong with that. I’ve had some rewarding paid retirement adventures during my retirement. Picking the right opportunity can be the ticket for closing the loop. 

If you’re collecting Social Security before reaching full retirement age and decide to work, just keep monthly income under $1,770 ($21,240 a year) to avoid bumping into the Social Security pre-FRA earnings limit. Unless of course you find a cool gig doing something that makes a ton of money and you don’t need to worry about the Social Security benefit clawback.

What does this all mean?

Well, what we need is nowhere near the routinely hyped million dollar retirement portfolio. Having no or little retirement savings isn’t necessarily a guaranteed doomed situation. Everyone will have their own unique needs based on where they live, how they spend, the amount of their Social Security benefit, and whether they have room for and are open to making more cuts or generating new income if necessary. 

What’s evident is that all of us had better know our expenses. We have to take control of our spending, have little or no debt, save something for retirement, and prioritize what’s important in our lifestyle. We should also be prepared for necessary changes to meet the inevitable retirement funding challenges. 

This also points out the importance of setting up a low lifestyle cost before retiring. If saving a huge portfolio is unattainable, then we best take care of where and how we want to live at the lowest cost we can joyfully do it. 

If you’re thinking, great, this exercise to see if we can live on Social Security alone only matters if it stays somewhat funded as promised. Well, I think we’ll all have bigger problems to deal with if Social Security collapses. That said, it is always better to save more than you will need based on whether everything else goes great. You know, just in case.

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