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Whether you’re 20 years old or 10 years away from retirement, it’s important to plan how you’re going to supplement your income and spend your money during your golden years. For many soon-to-be retirees, this means making a plan for their Social Security checks.

Americans 65 and older spend an average of about $50,000 a year on essentials such as food, housing, transportation and healthcare, according to the Bureau of Labor Statistic’s 2019 Consumer Expenditure Survey. But the average monthly Social Security benefit for retired workers is $1,521.59 — which comes out to only $18,259.08 annually. If you plan to rely on Social Security alone, you’ll quickly realize that this amount probably isn’t enough to fully fund your retirement lifestyle.

Still, you don’t want to blow through your Social Security check. That’s why it’s important to carefully budget and spend your benefits wisely. Keep reading to learn more about what you should do with your Social Security check.

Last updated: May 20, 2021

Even if you’ve just turned 62 and qualify for Social Security retirement benefits, it’s important to keep in mind that you don’t have to take them right away. In fact, for some people, waiting as much as an additional eight years is a smart financial move.

Why would anyone wait to receive benefits they’re entitled to? In a word: money. The longer you wait, the bigger your monthly payment. For those born in 1943 or later, Social Security checks increase by 8% per year for every year of deferral after age 62, up until age 70. If you don’t need the money right away and have other income or savings to live on, do the math and see if waiting longer to draw your checks makes sense.

Your Social Security payout is based on your highest 35 years of earnings, as recorded by the Social Security Administration. Because any record can have errors or gaps, you should verify your Social Security income record before you file for benefits. If the Social Security Administration is missing one or two of your highest-earning years, for example, your benefit could be permanently reduced by a significant amount.

To verify your Social Security record, create an account. This is where you can see your earnings record and other important information, such as your estimated future retirement, disability and survivors benefits. If you find any mistakes, you can contact the SSA at 1-800-772-1213.

The first thing retirees should do with their Social Security check is confirm they received the correct amount, said Kimberly Foss, certified financial planner and founder of Empyrion Wealth Management. After you confirm that your payment is accurate, it’s time to budget it properly.

Bill Kearney, owner of Integrated Financial Concepts, recommends creating a spending plan before spending your Social Security checks. Here’s how:

  1. Assess your expected monthly costs, including rent or mortgage payments, food, healthcare, debt and other living expenses.
  2. Tally expected income and where the income will come from.
  3. Match up your expenses with your expected income sources. In other words, figure out what your Social Security payments cover vs. your pension or withdrawals from retirement accounts.

If you want to maximize your Social Security benefits, you’ll have to keep an eye on your outside earnings. For 2021, if you’re younger than full retirement age, your Social Security benefit will be reduced by $1 for every $2 you earn above $18,960. If you reach full retirement age in 2021, your benefit will be reduced by $1 for every $3 you earn above $50,520 until you hit the month of full retirement age. After you hit full retirement age, there are no Social Security benefit reductions.

Next, it’s time to allocate your Social Security benefits. Leonard Hayduchok, CEO and president of Dedicated Financial Services, suggests treating your Social Security check as you would a paycheck. Use the benefits to pay for regularly occurring expenses such as housing costs and groceries. According to the BLS survey, people 65 and older spend an average of the following amounts on food and related housing expenses a year:

  • Housing: $17,472
  • Utilities: $3,810
  • Food: $6,599

You should try to allocate about 60% to 70% of your annual Social Security benefits to pay for these expenses, though that won’t be possible for many retirees. If your annual benefits equal the national average of $1,521.59 a month or $18,259.08 a year, that means 60% of your Social Security check — which comes out to $10,955.45 annually — won’t be enough to cover the expenses above.

Still, it’s a good idea to dedicate as much as you can to food and housing. After all, these are your basic needs — without them, you won’t live well. Just keep in mind that once you’ve used your check to cover these basic expenses, you’ll likely need to dip into your additional income sources to cover other costs.

Retirees whose food and housing costs are greater than their Social Security checks should look for ways to cut back on these expenses. For example, one option might be to move to a city where you can live comfortably off Social Security.

After budgeting to cover your basic needs, you should next pay for your medical expenses. Let’s assume that you’ll spend close to the national healthcare cost average for Americans 65 and older, which the BLS estimates at $6,833 per year. If you spend close to this amount, it’s wise to dedicate the remainder of your check toward this expense. But it’s also important to plan for rising healthcare costs that your Social Security checks likely won’t cover.

The 2019 Retirement Health Care Costs Report by HealthView Insights recently reported that the average 65-year-old couple who retired last year can expect to spend $12,052 per year on Medicare for parts B and D as well as supplemental insurance. That cost rises as you get older. The average 70-year-old pair will spend $16,068 per year on these items, the average 75-year-old couple will spend $21,706, and the average 80-year-old couple will spend $28,552.

After you’ve paid for necessities and healthcare, you might only be left with a few hundred dollars a year if you get the average retirement benefit. So what should you do with that leftover cash?

Edwin Cruz, owner of Prosperity Financial Group, tells his clients to set aside 10% to 20% of their Social Security checks to cover the unexpected. He also recommends adjusting this amount over time until the retiree has six to nine months of living expenses built up.

Following this strategy — and assuming you get the average retirement benefit — you should aim to save at least $1,825.91 each year until you reach your six to nine months’ worth of emergency savings. But since you’ve already used your Social Security checks to cover other high-priority expenses, you’ll likely need to tap into other income sources to build an emergency fund.

If you claim retirement, disability or survivors benefits and have dependent children, you can file a claim for them as well. A qualifying child can receive up to 50% of a parent’s full retirement or disability benefit, and up to 75% of a deceased parent’s benefit. However, there’s a limit to the amount of money that can be paid to a family, with the maximum amount determined as part of every Social Security benefit computation.

To qualify, a child must be either younger than age 18, age 18-19 and a full-time student in grade 12 or lower, or 18 or older with a disability that began before age 18. Although this is not technically your Social Security benefit, it’s still an SSA payment that can help your family make ends meet.

Retirees must be mindful of how they allocate their retirement spending to make sure they can cover everything. In addition to basic necessities, healthcare and savings, there will likely be other expenses that your Social Security benefits might not be large enough to cover. This will be especially important to remember if benefits get cut in the future.

For example, you’ll still have to pay taxes in retirement. Depending on your financial situation, you might have to pay taxes on your Social Security benefits, which can make it even harder to cover retirement expenses. You’ll also need to make a plan for transportation costs and any vacations you want to take.

Although Social Security might not be enough to fund every aspect of your retirement, you can still find ways to lower your expenses and generate income. By doing so, you’ll improve your chances of enjoying a comfortable retirement.

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Barbara Friedberg contributed to the reporting for this article.

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.