The average Social Security check: In January 2024, the Social Security Administration reported that the mean monthly benefit was $1,771. This means that a person who lives solely off of Social Security benefits earns approximately $21,252 annually. Although the precise amount may differ marginally due to variables such as age, income, and other relevant considerations, the actual benefits are, at best, modest. You run the risk of spending your retirement funds beyond your means in the absence of proper preparation.
We consulted with experts at GOBankingRates regarding the most effective methods to utilize Social Security benefits. They had to analyze practically every category, including fund allocation to essential and non-essential things and if the investment was still worthwhile. Each month, our experts advise you to budget your Social Security benefits as follows:
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Where To Commence
“Budgeting for your Social Security check is comparable to budgeting for any other form of income.” “Prioritize determining your financial requirements,” advised Jake Hill, chief executive officer of DebtHammer Consolidation. “Assess your financial obligations, such as your mortgage, insurance, and phone bill, and allocate funds in your budget for the required payments.” Consider the remaining essential budget categories, such as savings objectives, an emergency fund, and travel expenses, among others. You should also allocate funds for discretionary or enjoyable expenditures; however, give precedence to the most essential items to prevent unnecessary overspending.
Give needs precedence over wants.
Regardless of the amount of money you receive from Social Security, you should always prioritize necessities over desires.
“Social Security benefits vary greatly depending on an individual’s earnings history and the age at which they choose to start receiving payments,” said Mike Kojonen, founder and owner of Principal Preservation Services LLC. “However, I advocate for the prioritization of necessities over desires, with a particular focus on establishing a safety net to address unforeseen healthcare expenses that tend to increase with age.”
Allocate funds for the necessities of daily living.
If your sole source of income is your Social Security check, you will need to ensure that you bookmark the appropriate websites where your money is headed.
Kojonen stated, “A reasonable guideline is to apply up to fifty percent of the Social Security check to necessities of daily living, such as rent or mortgage.” “While individuals residing in regions with a higher cost of living may experience a higher percentage, the objective should be to maximize comfort while adhering to the limitations imposed by a fixed income.”
David Brillant, proprietor of Brillant Law Firm and a provider of comprehensive tax, trust, and estate services, advised, “Prioritizing essential expenses is a prudent starting point when budgeting Social Security income. “Your housing expenses, including rent and mortgage, should not exceed 30 percent of your income.”
“Always adhere to this principle in financial planning to guarantee sufficient funds for supplementary expenditures.” This may vary slightly owing to regional cost of living differences. “Adjusting this percentage might be required; however, to preserve budgetary flexibility, keep it as low as is practically feasible,” he said. “Regarding discretionary spending, it is prudent to divide your budget into two categories: necessities (such as utilities, groceries, and healthcare) and non-essentials (including entertainment, dining out, and hobbies).” One can meet their fundamental needs by saving away 20–25% of their Social Security payment for non-housing expenses. Saving 10% is also wise, if possible. On a fixed income, it may be challenging, but a buffer for unforeseen expenses is vital.
Make a Discretionary Spending Plan
Having enjoyment does not have to be prohibitively expensive if you are strategic about your spending.
Kojonen advised limiting discretionary expenditures and “fun money” to a range of 5–10% of the monthly Social Security benefit. “This recognizes the significance of engaging in hobbies and deriving pleasure from life while maintaining financial stability.”
“Fun money” for hobbies and entertainment is also essential for a balanced existence, according to Brillant. Five to ten percent of the check can be used. However, this budget component should be the most flexible, according to your key expenses and savings goals.
Invest Prudently
And while you’re at it, if possible, remember to invest. One of the most effective ways to invest one’s money is in a manner that promotes its growth.
“Because Social Security funds are limited, it is not always possible to save or invest a portion of a check,” Kojonen said. “However, if money is available, setting aside at least 5 percent of a Social Security check can provide a safety net for unexpected expenses and contribute to a sense of financial security.” “While these percentages may require modification in practice due to unique circumstances, they serve as an initial structure for retirement budgeting that is realistic and balanced.”
“Investing a portion of your Social Security check may not always be prudent due to the fixed income and risk involved,” says Brillant. “Consider investing in low-risk options that preserve your financial stability, if the opportunity arises.”
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