Back > Retirement Planning  > Social Security and the Cost of Living in Retirement

Social Security and the Cost of Living in Retirement

If you are getting near the age where retirement is around the corner, you’ll most likely have Social Security on your mind. Being able to pay for your bills and keep your refrigerator stocked means you will need money available or an income to support your lifestyle every month for the rest of your life. 

The problem is that Social Security is often not enough on its own to keep you going at the same level — life and leisure are expensive activities and Social Security benefits are fairly modest. If you rely on these benefits alone, you won’t be retiring in the sunshine and enjoying your golden years free of financial worries. Quite the opposite actually — you’ll end up stressing out about money for the rest of your days. 

Statistics show that Social Security benefits replace only about 40 percent of your past earnings, so unless you’re ready to trim the fat and survive on 40 percent of your quality of life, then smart planning needs to be the order of the day. 

Having enough money saved and invested to supplement Social Security benefits will be essential for most retirees. “You cannot rely on Social Security alone when you are planning for your retirement,” says Michael Norton, Senior Vice President of David Lerner Associates. ”Even with the cost of living adjustments, it just isn’t enough to look after you properly in retirement. Make sure you have sound advice and invest wisely. Looking into retirement savings plans is a good start. An IRA or 401(k) needs to be up to date and working as well as they can for you if you want to reap the rewards later.” 

In 2020, the average Social Security retirement benefit was just $1,514 a month. That works out to a little over $18,100 for the year. Unfortunately, the average cost of living per person in the United States is more expensive compared with over 80 percent of the rest of the world and is estimated at $2,797 per month. That leaves you over a thousand dollars short every month. A family of four has even higher estimated monthly expenses of $4,770. 

Planning for your retirement should not put you or your money at risk. Find a sensible middle ground when it comes to investing and set goals according to your needs. Planning is always a wise strategy, and planning with a professional can help guide you through the pitfalls of retirement preparation. Especially if you want to get the most out of your retirement and not have to rely on Social Security alone.

If Social Security benefits are not going to be enough for you to survive during your retirement, then you need to begin strategizing your end game, if you haven’t already. 

No one lives forever and most of us can’t work forever, even if we wanted to — there are health concerns and expenses to think about in our later years too. This means you will need to save or invest to reach your goal of being able to retire worry-free. 

But here’s a piece of good news — the Social Security Administration announced that in 2022 seniors will be in line for a 5.9 percent Cost of Living Adjustment. This will be the highest COLA increase in benefits that Americans have seen in about 4 decades. The estimated average monthly benefit for all retired workers will rise from $1,565 to $1,657, which means that over the period of a year, you could have slightly over an extra $1,100 ($18780 vs $19,884) in your pockets.

To put this COLA rise in perspective, it helps to look at previous years. Last year there was a measly 1.3 percent bump in benefit payouts. 

Maintaining the same buying power, you get from your benefit payment every month takes some adjustment over time. Prices go up and inflation can be devastating if you aren’t prepared for it. If the Social Security Administration didn’t adjust for inflation and the cost of living, over time, our seniors would be in dire straits and would be unable to keep up with living costs, even with supplemental income strategies and holding off on claiming Social Security benefits until the age of 70 (when you effectively maximize your payouts, as opposed to claiming at the earliest opportunity when you’re age 62.)

Budgeting for the future means you will have a better chance at a quality retirement since none of us want to live out our final years stressed out about personal finances. It is not a pleasant thing to think about, but it is necessary to confront reality or reality will make a point of showing up when you can’t afford it. 

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. 
Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC

Your Investment Counselor

Skip to content