Is it possible to retire on Social Security alone in 2024? | The motley fool

Are you hoping to retire in the near future but haven’t saved anything for retirement? Never say never. Although Social Security is not intended to make up the entirety of one’s retirement income, most people will be entitled to some amount of benefits when the time comes.

The question is, in light of today’s cost of living, will Social Security alone be enough to finance even a modest lifestyle in retirement?

Certainly not.

Eye-opening numbers

This isn’t meant to be discouraging, but the average monthly Social Security check that retirees are getting this year is just over $1,900, or about $22,800 a year. That’s a far cry from the $72,967 the U.S. Census Bureau says the average family spent in 2022 on basics like food, clothing and shelter.

However, keep both of these numbers in perspective. This typical monthly Social Security payment is only one retiree’s average benefit, but there may be two retirees living in the same household. Average household expenses also over-reflect the needs of families consisting of three or more people, which naturally require more expenses than a family with one or two retirees. You’re also more likely to own a home after you retire, while people in their working years often make mortgage or rent payments.

However, the odds of covering all your expenses in retirement with a monthly income of just $1,900 are slim … even if you live modestly.

By the way, the Census Bureau reports that nearly half of all people living in the United States between the ages of 55 and 66 have nothing saved for retirement. The Federal Reserve confirms this finding. Clearly, a bunch of retirees are trying to make it work on Social Security alone, or soon will be.

The good news is, even if you haven’t yet saved enough — or nothing at all — to retire on your own, there are some things you can do to help better fund your future.

Playing catch-up

Don’t be scared! The chances of making a wise decision when you are panicking are slim. Instead, take some time to think things through before making your move to close the gap between what you have and what you need.

There are two main categories of people in this predicament: People who are already retired and collecting benefits, and people who aren’t but soon will be.

If you’ve already started collecting your Social Security retirement benefits, it is IS it is possible to suspend them and resume them again at a later date (allowing them to grow). However, this option has limitations. One of them is that you must have started your benefits only within the last 12 months. You will also need to repay any money you have already received.

This means that not only will you need to come up with a significant amount of money, but you will also need another source of income until you can resume your benefits. If you’re worried about living on nothing but your Social Security payments, you probably don’t have this other income.

Therefore, a more viable option for most Social Security recipients is even more obvious: to keep working.

Image source: Getty Images.

This is definitely not what every retirement minded individual wants to do at this stage of their life. But if the alternative is going into debt or losing your home, earning job-based income clearly makes sense. This includes starting your own small business.

You can earn a fair amount of money without also affecting your Social Security payments. If you haven’t yet reached your full retirement age (or FRA) this year, you can earn up to $22,320 before the Social Security Administration starts reducing your benefit. And even then, the program only deducts $1 from your benefit for every $2 you earn above and beyond that limit. These earnings limit rules become significantly more generous the year you reach your FRA. You’re also given credit for any such deductions, so you’re not losing those benefits entirely by working.

If you have not yet retired and are not yet collecting Social Security benefits, your first best option is to simply postpone your retirement date. Not only does this give you more time to save, but it should also boost your eventual Social Security payment. Although you’re eligible to claim as early as age 62, each year you wait adds 5% to 8% to your monthly benefit.

Whichever scenario applies to you, know that once you turn 70, there is no added advantage to waiting to claim Social Security benefits, nor is there any penalty for earning other forms of income after you reach FR.

A scenario best avoided by a lot of early planning

The best way to never be faced with such a difficult scenario, of course, is to never let yourself be put in this kind of situation in the first place.

But challenges like bankruptcy and health problems can chew through savings. Other times, circumstances simply don’t allow for extra money to be put into a retirement savings account. None of this is a judgment on anyone who should receive only Social Security income in retirement.

To the extent possible, however, doing everything you can now to generate contingent income above and beyond your Social Security benefits later is worth the effort. Even just picking up an extra $100 a month and investing it in a stock index fund can be worth over $200,000 after 30 years based on an average annual return of 10%.

Just understand that timing does most of the heavy lifting for investors. That’s why it’s so important to start as soon as you can, even if that start is small.