Don't Rely Solely on Social Security | Rodgers & Associates

How to Avoid Overreliance on Social Security (While Making the Most of It)

In 2022, Social Security will experience the largest cost of living adjustment (COLA) in 40 years. Retirees drawing benefits will receive a 5.9% COLA adjustment. Yet unfor­tu­nately, according to the Senior Citizens League, this will not be enough to cover many retirees’ rising healthcare and housing costs.1

The 2022 COLA increase raises the average monthly Social Security payment to $1,657 (an annualized benefit of $19,884). This amounts to an average increase of $92 per month, a portion of which will be reclaimed by the rise in Medicare Part B and Part D monthly premiums.2

For the 21.6 million people kept out of poverty by Social Security benefits, a couple extra dollars per month may not be enough to cover other expenses that have also increased.3

Maximize Social Security Benefits

One objective of retirement planning is to maximize your Social Security benefits without becoming overly dependent upon them. Many Americans pay into this program for most of their careers. Social Security consumes 6.2% of most workers’ paychecks, while their employer matches another 6.2% of their income. These taxes can amount to $1 million or more over a lifetime of working.

It’s important to first consider when to begin drawing Social Security benefits. The most popular time to start these retirement benefits is age 62. Thirty-five percent of men and 40% of women choose this age, which means that more than half of all Americans begin drawing retirement benefits before full retirement age.4

While age 62 may be the best age to draw benefits for some people, this likely isn’t the case for most. Consider the numbers: If you’re at the maximum taxable earnings limit and you retire in 2022, the most you can receive in monthly benefits at age 62, 65, and 70, respec­tively, is $2,364, $2,993, and $4,194. So, the benefit at age 62 is only 58% of the amount for a retiree waiting until age 70. A person in good health whose family has a history of living into their late 80s could poten­tially draw greater benefits by waiting longer to start.5

I recently spoke with someone following a speech I gave about planning for retirement. This individual was 60 years old, recently divorced, and starting over with a small amount of savings. She wanted to know what steps to take to maximize her retirement income. Fortu­nately, she had a good job that she liked. My advice to her? Maximize savings, minimize expenses, and hold off on drawing Social Security until age 70.

Minimizing expenses can help develop the skills necessary to keep spending under control. While 10 years of savings cannot accom­plish what decades of compounded growth can achieve for someone younger, it can still help grow a nest egg.

This woman may have another option. If she was married for at least 10 years, she is entitled to spousal benefits based on the ex-spouse’s work history. If she waits until her full retirement age, the benefit is equal to one-half of the ex-spouse’s full retirement amount. For someone like her, born in 1958, the full retirement age is 66 and 8 months. So, she will want to determine if this benefit is more or less than 100% of her benefit at age 70.

Minimizing Dependence on Social Security

Americans who have more time to plan for retirement should be aware that the 2021 Annual Social Security and Medicare Trust Fund Report projects that full benefits will only be paid on a timely basis until 2033. While it’s unlikely Social Security benefits will disappear entirely, in 2034 there is reasonable proba­bility they may pay less than promised. A prudent course of action is to take control of your retirement plan in the following ways:

  • Use an employer-sponsored retirement plan and maximize contri­bu­tions whenever possible. These plans typically offer tax advan­tages when making contri­bu­tions, and many include valuable employer matching.
  • Set up an IRA or Roth IRA and make the maximum contri­bution each year.
  • Save and invest after-tax money in a brokerage account. The account won’t provide immediate tax benefits. However, the investment return in long-term capital gains or qualified dividends is taxed at a lower rate than pensions or retirement account withdrawals under current tax law.

Hopefully our policy­makers will find a way to preserve this vital benefit for everyone. However, by planning a successful retirement that doesn’t depend on Social Security makes the benefit a bonus. Don’t let counting on unpre­dictable Social Security taint your golden years.

Rick’s Tips:

  • Social Security benefits will receive a 5.9% COLA in 2022.
  • Medicare Part B and Part D monthly premiums usually increase by the same percentage as the Social Security COLA.
  • It may be prudent to plan retirement without Social Security, since under current projec­tions, full benefits are only possible until 2033.

Origi­nally Posted December 13, 2018

  1. Senior Citizens League: 2022 Social Security raise not enough to keep pace with inflation. USA Today, October 27, 2021. 
  2. How Will Your Social Security Benefits Compare to the 2022 Average? Motley Fool, October 27, 2021. 
  3. Social Security Lifts More Americans Above Poverty Than Any Other Program. Center on Budget and Policy Prior­ities, February 20, 2020. 
  4. Center for Retirement Research at Boston College, October 2019. 
  5. SSA​.gov. Benefit Examples for Workers With Maximum-Taxable Earnings.