We remember many phrases uttered by Franklin Roosevelt, such as, “The only thing we have to fear is fear itself,” and, “A date which will live in infamy.” Alas, most of us have forgotten the FDR pronouncement most relevant to our lives.
Upon signing the Social Security Act into law in 1935, Roosevelt said:
None of the sums of money paid out to individuals in assistance or in insurance will spell anything approaching abundance. But they will furnish that minimum necessity to keep a foothold...
More than 80 years later, that’s still the case. Yet in 2020, Social Security provided 21% of married retirees and 45% of unmarried beneficiaries with 90% or more of their monthly income.
Our overdependence on Social Security, which pays an average of roughly $1,500 per month to retired workers, is largely the result of changes in employment benefits and society. Private-sector pensions, once the cornerstone of retirement funding, have nearly disappeared, replaced by 401(k) and other savings programs that require us to largely self-fund our retirement and aggressively save toward that goal. Meanwhile, we are living longer, having children later in life, and often supporting elderly parents—all in a volatile economy.
These factors can wreak havoc on workers' efforts to save for retirement. The chart below illustrates how low-income retirees depend on Social Security benefits for more than half of their retirement income, while retirees in the top income brackets have other sources of income.
If you think you'll be living solely on Social Security in retirement, there are steps you can take to make the most of your benefits, even if you are nearing retirement age.
Max Out Your Earnings
Make sure that you work at least 35 years, even if that means pushing back your retirement. Social Security benefits are based on your 35 highest-earning working years. Work fewer than 35 years and those years without an income go into the calculation as zeros, which could significantly lower your monthly retirement benefit.
While you are working, consider ways to maximize your income. If you’re at the top of the pay scale in your career, think about taking a second job. Anything you do to boost your yearly income will pay off in your Social Security check.
You can get a detailed estimate of your retirement benefits online from the Social Security Administration.
Hold Off on Taking Benefits
You want to make sure you wait until you are at least full retirement age to start claiming benefits. Your full or “normal” retirement age, as defined by the Social Security Administration, is between 66 and 67, depending on what year you were born.
Choosing to take early distributions will reduce your monthly benefit amount for life. If you can, postpone tapping your benefits until age 70. This will get you what the Social Security Administration calls “delayed retirement credits.” Your benefits increase 8% each year you delay taking Social Security income until age 70. Waiting until you hit 70 translates into about a third more income for life.
Move to a Cheaper Place
To really stretch your Social Security benefits, consider moving to a less expensive area to reduce your cost of living in retirement. This time-honored tradition helps explain the ongoing migration of older Americans from places like New York and Massachusetts to Florida and North Carolina.
There are any number of vibrant small cities where you can live a full life and cover your largest costs—such as housing and food—on what you and your spouse receive from Uncle Sam. You might even consider moving overseas or to any one of the Central and South American countries that welcome American retirees with warmth, easy-going lifestyles, modern amenities, and low costs of living. Just make sure that the US will send social security payments to the country you move to. If they don't, you might have to move back to the US or find another SSA-approved country to call home.
Ideally, Social Security would be just one revenue stream in your retirement income. Savings and investments, a part-time job, and even some passive income such as rental earnings could also be in the mix. Life happens, sometimes with terrible timing. If things do go sideways, know that by employing these strategies, you can still have a great post-career life, courtesy of the benefits you've been earning since your very first job.