Social Security has long been a safety line for retirees, but it’s not meant to be the complete financial picture. The Social Security Administration (SSA) reported an average monthly Social Security paycheck of $2,071 as of this past January.
Payment amounts aside, here’s what you need to know about how your Social Security check is calculated and how it could impact your budget in the coming months.
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How Much Social Security Can Impact Your Budget
Initially, the Social Security system was meant as a supplement for your retirement years. It was never intended to 100% fund your retirement.
“Social Security replaces roughly 40% of pre-retirement income for the average worker, but most people spend it like it’s a full paycheck,” said Ryan Richardson, certified financial fiduciary and CEO of LiteStrats.
Say your Social Security check is $2,000 even. That’s about 40% of a $5,000 income. While expenses might decrease in retirement, you’ll still likely need more than what Social Security gets you alone. Ideally, you’re not relying solely on that one monthly income source to make ends meet.
“The smarter move is to treat it as a base layer and build a separate income stream around it,” Richardson said. “Budget the Social Security check for fixed expenses only, housing, utilities, insurance and keep discretionary spending covered by something you control.”
Having other income sources in retirement, like a pension or passive income, can be a smart way to do this. Certain investments, like rental properties, may also boost your income potential. Just be prepared for any expenses that go into maintaining those investments (like the rental properties).
What Determines Your Social Security Payment
According to the SSA, two main factors determine how much you’ll get in Social Security.
The first is your work and earnings history. Your benefit is based on your 35 highest-earning years of work. These don’t have to be consecutive, but each one counts toward your ultimate benefit amount. If you worked fewer than 35 years, the missing years count as “$0” and are averaged in that way.
Next up is the year you were born and when you choose to claim your benefits. You can start collecting Social Security as early as 62, but you won’t get the maximum amount.
“Claiming early can cut your benefit by up to 30% permanently and that gap compounds over a 20 or 30 year retirement,” Richardson explained.
Waiting to claim benefits until you reach the full retirement age can get you a higher monthly payment. That’s 66 or 67 years old, depending on your birth year. Delaying until you’re 70 years old will get you the maximum benefit possible.
Will Social Security Increase in August?
If you’re hoping for an increased benefit coming in August, you might have to be a little patient and work with what you’ve got until 2027.
“Social Security increases would be on a yearly basis where they are announced in October and then implemented in January,” said Chad Gammon, certified financial planner (CFP), retirement income certified professional (RICP), enrolled agent (EA) and owner of Custom Fit Financial. “You won’t see a change mid-year.”
Every year, there’s something called a cost-of-living adjustment (COLA). It’s what increases Social Security and SSI benefits. It’s basically meant to help combat inflation.
For 2026, the COLA was 2.8%, per the SSA. While it’s too soon to say for sure what it’ll be next year, The Senior Citizens League predicts a 3.8% COLA.
So, if your current benefit is $2,000, it could be $2,076 next year. That may give you a little more room to work with in your budget, depending on your current expenses and how much they rise.
Budgeting With Social Security
Social Security payouts aren’t generally meant to cover all the bills. But if yours do, there may be ways to improve your financial situation even now.
“If Social Security is your primary income source, then you will want to start looking at expenses and finding areas where you could reduce,” Gammon said. “Check for eligibility for assistance. This could be the Supplemental Nutrition Assistance Program (SNAP), property-tax relief, Medicare savings programs and other local programs.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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