Living on Social Security in retirement requires a different kind of budgeting mindset. With income largely fixed, the challenge shifts from earning more to managing tradeoffs, anticipating rising costs and building a plan that holds up over time.
Any Social Security-based budget has to start with a realistic look at income. For most retirees, benefits alone provide a modest and fixed monthly amount. According to Christopher Stroup, a CFP and owner of Silicon Beach Financial, benefits average around $1,900 to $2,000 per month for a single person and roughly $3,000 to $3,300 for a married couple.
Here’s what a budget on Social Security might look like.
For retirees relying primarily on Social Security, monthly benefits may best be allocated roughly as follows:
Housing: 30% to 45%
Rent or property taxes, homeowners insurance, utilities and basic maintenance often consume the largest share of income.Healthcare: 20% to 30%
Medicare premiums, supplemental insurance, prescriptions and out-of-pocket medical costs represent one of the most consistent expenses.Food and transportation: 15% to 20%
Groceries, basic dining, gas and car insurance tend to be tightly managed but unavoidable.Taxes and insurance: 5% to 10%
Federal and state taxes, property taxes and rising insurance premiums are frequently underestimated.Discretionary spending: 5% to 15%
Travel, dining out and helping family typically depend on how well housing and healthcare costs are controlled.
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When Social Security is the primary income source, fixed expenses dominate monthly cash flow, Stroup pointed out. “Housing, healthcare and basic living costs dominate the budget, leaving limited flexibility unless housing is paid off and healthcare is carefully managed,” he said.
Rent or property taxes, Medicare premiums and out-of-pocket medical costs, utilities, food and insurance all fall into this category. These costs are often difficult to reduce quickly, making early planning essential, Stroup warned.
Housing decisions often determine whether a Social Security-based budget feels manageable or perpetually strained. Owning a home outright can free up hundreds to thousands of dollars each month, said Jared Kessler, founder of ForexBroker.tips.
“Homeowners who have paid off their home loans typically are in the best financial shape,” he said. The absence of a loan payment on the home allows for a greater degree of budget flexibility by stretching dollars from Social Security income.
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Carrying a mortgage or renting can also force tradeoffs with healthcare, food quality and discretionary spending, making location and property taxes critical planning variables, Stroup added.
Healthcare is one of the least predictable — and potentially steep — expenses in retirement. “Retirees should budget $400 to $700 (or more) per person per month for Medicare premiums, supplemental insurance, prescriptions and out-of-pocket care,” Stroup urged.
Discretionary spending is possible on Social Security, but it is limited and highly dependent on fixed costs. Travel, dining out and family support often require careful tradeoffs and firm boundaries, Stroup suggested.
“When Social Security is the primary income, discretionary spending typically falls in the 5% to 15% range of the monthly budget,” Stroup said.
It depends heavily on housing and healthcare costs, he added. “Without controlling those, even modest lifestyle upgrades can destabilize cash flow.”
Even retirees who plan carefully are often surprised by how quickly certain costs rise once income becomes fixed. Insurance premiums, taxes, utilities and home maintenance can quietly erode cash flow over time.
“Healthcare, insurance premiums, home maintenance and taxes surprise retirees the most,” Stroup said.
Taxes and even small additional income streams can significantly change how far Social Security goes. Stroup reminded retirees that up to 85% of Social Security benefits can be taxable, depending on total income.
The most effective strategies to minimize taxes include a series of financial moves, including lowering housing costs, coordinating Social Security claiming decisions, optimizing Medicare coverage, actively managing taxes and leveraging location arbitrage, Stroup said, all of which is most effectively done with the support of a financial advisor.
And whenever retirees can add in supplemental income, whether through a side gig or investment dividends, that extra cash can take some pressure off a fixed monthly budget, Stroup said.
A clear, realistic budget can help retirees relying on Social Security make informed choices and avoid financial surprises as costs continue to rise.
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This article originally appeared on GOBankingRates.com: What a Budget Might Look Like If You’re Relying on Social Security in Retirement
