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Living on Social Security alone

By Jennie L. Phipps · Bankrate.com
Monday, September 17, 2012
Posted: 5 pm ET

If you don't have a retirement savings account -- a 401(k) or an individual retirement account (IRA) -- what would it take to persuade you to open one?

How about the prospect of living on Social Security alone?

About one-third of households live on nothing other than Social Security, according to an analysis of data by the Center for Retirement Research at Boston College. Among those with low incomes, 75 percent of people live on Social Security alone, the center calculates.

What does that mean in terms of money in your pocket to pay the bills?

The average Social Security check, according to Social Security, is $1,230 or $14,760 a year -- about $7.10 per hour, a little less than the federal minimum wage of $7.25 per hour.

But that doesn't take into account money deducted to pay for Medicare. There is no charge for Medicare Part A, but Part B, which covers costs other than hospital stays, charges most people $115 per month. Social Security deducts it before depositing your benefit in your bank account. That takes the amount you have to live on annually to $13,380.

If you opt for Part D, which covers prescription drugs, you'll pay another $30 a month, reducing your take home to $13,020 or $1,085 a month.

If you want a Medigap plan to cover deductibles and other costs that aren't covered by basic Medicare, you'll pay an additional $165 per month or $1,980 per year, although this cost varies by plan and region. That will reduce what you have to live on to $11,040 or $920 per month.

Not much -- although there are benefits to being this poor. You will probably qualify for the government's "Extra Help" with Part D, and you may also be eligible for SNAP -- the program formerly known as food stamps. But any way you look at it, it's not a way of life most of us would choose.

If you have a spouse, the situation improves, but not by much. Especially if you're a woman and can expect to live at least five years longer than a man.

At a time when both candidates for the U.S. presidency are proposing cutbacks in Medicare and/or Social Security, Alicia Munnell, the director of the Center for Retirement Research, is urging an expansion of programs that help people save for a more comfortable retirement, especially for those in the private sector who are not among the 42 percent who participate in a workplace retirement plan.

Will that happen? I wouldn't hold my breath. In the meantime, the best retirement planning starts with taking the initiative to open a retirement savings account and putting as much as you can into it. Munnell says the typical household approaching retirement (ages 55 to 64) has only $120,000 in 401(k)/IRA balances. Assuming that the household purchases a joint-and-survivor annuity at retirement, its monthly income from savings would amount to only $575, she calculates.

She says it's not enough and she's probably right, but it sure beats nothing.


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7 Comments
Blanez
November 13, 2012 at 6:34 pm

Anita's story is a sad one. I feel for her. The advice given to "Save, save, save folks." is the right one. I have been saving diligently with my wife for 30 years at 8-10% of our take home incomes and while we have accumulated a decent retirement portfolio we aren't ever going to be considered wealthy. We still owe $250,000 on our middle class house. The SS income we will receive will barely [almost] pay for basics here in Hawaii. Not our mortgage. I tremble to think of having to live off of SS as my only source of revenue during my retirement lifetime. The young folks that have had everything given to them by indulgent parents will find that early struggles will help prepare them for their later years. The 1/3 who will live off of only SS will find life as difficult as Anita is, possibly worse.

Anita Johnson
September 27, 2012 at 7:32 pm

We are about to begin living on Social Security alone after using up the retirement funds we were able to save. I am sixty-four and disabled and my husband is 75, I got ill in my 40's, had to retire on Social Security Disability at 52 and since I was the only one with a retirement plan, we only had about $200,000 to use until death. The bad news? We aren't dead. Since we actually needed the retirement money to live on, we could not hide from the approximately 40% that had to be paid in taxes! When we did try to invest and avoid taxes, we lost money on basic, "safe" investments like bonds, securities, but still lost money! Though we each pay $115 a month for Medicare and pay for two supplemental policies at $135 month each, we still had over $2000 in medical bills this year! Medicare is not a free ride! We have $5000 left in savings and so soon we join the poor social security folks. We have to move from our small apartment to a smaller, uglier one, stop cable, cancel life insurance policies, freeze in winter to save on electricity, and we can't afford any form of entertainment or recreation! There will be no money for new clothes, beauty salons or makeup, and worst of all, no gifts for the Grandkids, who won't mind but I will hate that! Adding insult to injury, we make two thousand a year too much to qualify for the special senior rates on apartment rents or to qualify for any programs for Oregon seniors to help them live better lives. I am frankly terrified. This is the golden years? I think not. Save, save, save folks. Life is tough enough at this age without going back financially to when you were first starting out, only this time you can't look forward to building your income to pay for a better lifestyle. No chance for new jobs, promotions, raises, bonuses, paydays of any kind that can increase your enjoyment of life, Oh, and the kids who would gladly help? Victims of the economic problems that affect them, lay offs, jobs sent overseas, skills no longer relevant, mortgage problems, credit card debt..
. Unless you can get excited about coupon day at the A&P, I suggest you do what you can now to make life golden for yourself by saving as much as possible, learning the tax implications of retirement funds and realizing that your life will last for a long time after retirement so be realistic about what the real costs will be for your family and act accordingly. It isn't enough to have good intentions. Save Now!

freebird
September 18, 2012 at 2:32 pm

I presume whether it "beats nothing" depends on where they draw the line for means testing benefits? Might be risky to accumulate an IRA/401k balance over the median; you may be better off paying taxes on it today.

Arthur
September 18, 2012 at 2:25 pm

Clearly VP candidate Paul Ryan is "proposing cutbacks in Medicare and/or Social Security," but it's a stretch to say that Obama is, too. Unless you count his plans to improve efficiencies and limit payments to Medicare providers against him. And there are a number of benefits from Obama's Affordable Care Act that are coming on line now that Republican efforts to beat back the program have failed.

Ryan would also cut Medicaid payments by 1/3, and raise the minimum age to delay people from qualifying for Social Security at all. It's misleading to imply that both parties are making it harder for people on Social Security. Sure, it's tough to find enough money for it all, but cutting taxes for the rich is not the way to do it.

tony
September 18, 2012 at 12:47 pm

until an economist comes up with a person really needs for a years worth of living $12,ooo.oo a year is not enough to live on inthis time is acurate. maybe 70 years ago but not in 2012. food prices have tripled, rest has tripled, healthcare has tripled,and so has insurance. but for the average person their pay check has not. ss has to come up at today's economy and today's costs.

Ray
September 18, 2012 at 10:11 am

"About one-third of households live on nothing other than Social Security, according to an analysis of data by the Center for Retirement Research at Boston College. Among those with low incomes, 75 percent of people live on Social Security alone, the center calculates".

I don't think they mean 1/3 of all households. Is this 1/3 of households over a certain age?

DREWWHO
September 18, 2012 at 5:50 am

AW SHUCKS THAT DON'T MAKE SENSE