In fact, according to the Social Security Administration, 23 percent of married couples and 46 percent of single people receive 90 percent or more of their income from Social Security. In addition, 53 percent of married couples and 74 percent of unmarried people receive half of their income or more from their monthly Social Security check. To make matters worse, according to a report by AARP, three out of five families headed by a retiree over 65 had no retirement savings.
The average monthly Social Security payment is $1,200 per individual which does not go very far. If you add this up you get a total of $14,400 a year. The poverty level for an individual is $10,980 so, unfortunately, many older folks are on the thresh of poverty.
I recently read a few examples of people relying solely on their Social Security checks. I share these stories to illustrate why it is so important to start investing money while you can work because, once you hit a certain age and cannot work as much as you did when you were younger, your options will be limited.
Here goes (real names changed):
Jane Simpson, age 72, is an example of what it is like to live almost entirely on Social Security with no savings and no house to sell if need be. Ms. Simpson was a stay-at-home mom before working for 30 years and retired at age 65. She receives $890 a month in Social Security. Her rent, in subsidized housing, is $128 a month. She has a credit card bill and a medical bill for a hip replacement that she is working to pay down by applying between $50-$100 each month on these. She also has her regular expenses such as phone, cable, electricity and trash collection.
“I have to be really careful with my check,” she said. “Usually every other month I can go to the grocery store and spend $130 to $150. I buy a lot of freezer things. I’ve been a diabetic for five years, and I can’t eat a lot of things.”
She says that it is the unexpected expenses that are difficult to manage. In August, she had to pay $72 to get new license plates for her car and $28 to change the address on her driver’s license. “I would have been all right if I didn’t have to buy the tags on my car,” she said.
What a tough situation to be in. When you are living check-to-check, something as little as tags for your car can put you over the edge. Ms. Simpson did have some rough breaks and unfortunately, after working 30 years, has pretty much nothing to show for her hard work.
Jane Smith, 81 and a former insurance claims administrator, was in a tough situation a few years ago. She paid-off her mortgage free and clear but never had more than $4,000 in the bank. Her $1,100 monthly Social Security check and $200 pension did not cover her expenses.
“I was cash-poor and dirt rich,” she said. “I was having to use my home equity loan to pay for home expenses, my taxes, my nursing home insurance.”
She decided to sell her house and rent an apartment in Florida to be closer to one of her daughters.
“Money is a definite concern every time I break a twenty,” Mrs. Smith said. “I can’t be cavalier about money. I don’t eat out, but I had a lot of years of eating out. I don’t subscribe to a lot of magazines. I don’t buy clothes, but I don’t go anywhere I need them.”
Selling her home was a great relief. When all the bills were settled, she was able to put $130,000 in the bank. After years of struggling, she is able to rent a condo that takes up most of her Social Security check. She is able to pay for her other expenses with the money she made from selling her house.
“I make it now because I sold my home,” she said. “My apartment costs more than I can afford, but at 81, I figured why not?”
Although Mrs. Smith seems to be in a good position right now, appearances can be deceiving. You see she is making a bet on how much time she has left on Earth and is relying on the premise that she will die before her money in the bank runs out.
These two examples are the reasons why I choose to invest money each month and manage our spending carefully. I know one day I will be in a situation where I can’t or do not want to work anymore but still want to have some freedom to enjoy life and not worry about every $20 bill I spend. These stories show why this is so important.
What are your thoughts about theses stories of people living on social security and why it’s important to invest for retirement?