When Social Security was signed into law in 1935, it was a huge step for the nation. This social insurance program has reduced the poverty rate for people over age 62 from roughly 50% down to less than 10% in 2019.
Social Security is just one way to help make ends meet in retirement, but for many people, it makes up a significant portion of their total income in retirement. If you are planning to retire soon but are heading into your golden years with less savings than you think you’ll need, there are some things you can do to help make ends meet.
Work Until Age 70
For many years, Americans have associated age 65 with retiree age. In fact age 65 is the first year that you are eligible to sign up for Medicare, which will provide your healthcare benefits during retirement.
However, Social Security bases your full retirement age around the year that you were born. People born between 1943 – 1954 will reach FRA at age 66. People born in or after 1960 will reach full retirement age at age 67, and people born between 1955 – 1959 fall somewhere in the middle.
Your full retirement age is important because this is when Social Security will pay you 100% of your benefits earned based on your earnings record. This figure is called your primary insurance amount.
Taking Social Security early – before you reach your FRA – will reduce your primary insurance amount. But taking it later than your FRA will increase your primary insurance amount quite a bit.
If your Social Security FRA is age 67 and you can hold off on taking benefits until you reach age 70, you’ll earn 124% of your primary insurance amount monthly for the rest of your life. This bigger check can make it easier to live on Social Security alone.
Delaying Social Security benefits beyond your full retirement age will boost your monthly retirement benefit by a hefty 8% per year
Pay Off Debt Before You Retire
Probably one of the best things you can do for your financial security in retirement is to come into retirement debt-free. Beneficiaries who don’t have a mortgage payment or car payment can stretch that Social Security benefit quite a bit farther than someone who has a monthly rent or mortgage of $1000.
A study by the Urban Institute found that nearly 8% of homeowners over 65 were upside down with mortgage debt in 2012. That’s not a situation that anyone living on a fixed income wants to face, so you need to take some steps to prevent that.
During your last few years before you retire, set up a budget and live beneath your means. Try to siphon off every dollar that you can to sock away at your debt. If it’s necessary to work some extra hours to earn extra money toward your debt, ask for overtime. Eat dinner at home instead of out at restaurants.
While you’ll have to make some sacrifices to do this, they will be far easier to make when you have a paycheck rolling in than they will be when you are living on a fixed income.
Move into a Smaller Residence
There have been several articles in the media in recent years about Boomers and the big houses that they tend to have compared to millennials who live in smaller residences. Household expenses are typically the largest expense that retirees face.
If your kids are grown and off living their own lives, you may have more bedrooms than you need. Consider downsizing into a smaller home with a smaller mortgage before you enroll in Social Security retirement benefits.
If you just can’t part with your home, ask yourself if renting out a bedroom to someone else would make sense for you. Sites like roommates.com are full of college students and other individuals who are looking for an inexpensive room to rent. An extra $200 or $300/month in rental income will loosen your belt a bit.
While you are looking at living expenses, you might also consider moving to a state with lower living costs. For example, living expenses in New York or California far exceed what you might pay in Arizona or Texas. Is there anywhere else that you would enjoy living that would also make it easier to live on Social Security alone?
Cut Other Costs Where You Can
Most people who put their mind to it can find ways to reduce their monthly expenses. One easy one to attack first is your cable bill. Paying for TV can cost well over $200/month if you sign up for special channels like ESPN or HBO/Showtime.
Instead, you could eliminate your cable bill altogether by streaming instead. A simple box from Apple or a half dozen other vendors will allow you to watch your favorite shows on Netflix or Amazon Prime.
You might also be able to eliminate some fuel and insurance costs by sharing a car with your spouse. Although this may take some getting used to, it could certainly lessen your financial strain during retirement.
Reduce Your Prescription Costs
While Medicare Part D is an excellent program for reducing medication costs, there are sometimes discount programs that could offer you even cheaper generic medications. You might take a couple of generic medications that cost $5 on your Part D plan.
However, if you check the GoodRX website, you might find coupons that enable you to get the same prescription for $1 at certain pharmacies.
If you sign up for a free discount program like GoodRX, show your pharmacist both your Part D card and your discount card and ask him/her which program will give you the lowest cost for the medication you are picking up today.
Check Your Local Food Pantry Programs and Senior Centers
Not too long ago, one of our clients reached out to me with a question about her Medicare policy. In that conversation, she mentioned to me that in the last week before her Social Security arrives, she is often down to eating bread and peanut butter to survive.
I spent an afternoon making some calls for her to see if we could find some support. I was quickly able to locate two local food pantries where she would be eligible for grocery pickups once a month. One of them even offered a special program for seniors every Saturday too.
Next, I contacted senior centers here in Fort Worth for her to see what sort of programs they might have for her. Soon I located a senior center just one mile from her home that serves hot lunches every day for a suggested donation of $2. My client and I were both delighted to find an inexpensive solution that would ensure you would eat at least one healthy meal every weekday when her Social Security check from the prior month was almost exhausted.
Spend a couple of hours checking out places like these in your community and you just may find the help that is literally right around the corner from your home.
According to an Annual Report on the State of Senior Hunger in America, 5.5 million seniors were food insecure in 2019
Reduce your Medicare Premiums
With a base Part B premium of $144.60/month for each individual’s Medicare coverage, your costs for healthcare can easily eat up 10 – 30% of your Social Security check.
However, there are several ways to reduce your Medicare premiums.
First, check to see if you qualify for any assistance program. If your income is low enough, you may qualify for Medicaid, which can help to pay for your Part B and D premiums. If your income is just a tad too high to get Medicaid, then consider applying for the Extra Help for Part D program.
Individuals who fall below certain income and asset limits can get a low-income subsidy that will not only help to reduce their Part D drug plan premiums but will also eliminate any drug plan’s deductible and coverage gap. People who receive the low-income subsidy can save an estimated $3900/year on drug expenses.
However, it is estimated that more than 2 million people who might qualify for this program each year fail to ever sign up for it.
Another way to reduce Medicare premiums is to deduct them from your taxes if your total itemized healthcare expenses constitute more than 10% of your adjusted gross income. Speak with your tax advisor if you think you may qualify.
Lastly, working with an insurance broker like Boomer Benefits is a way that you can make sure from year to year that your coverage is as cost-effective as possible. We can often help you shop your Medigap or Medicare Advantage policy from year to year to make sure that you are paying as little as necessary for enough coverage that still meets your needs.
To find possible savings with your coverage today, give us a call at 817-249-8600