Here's One Silver Lining to Retiring on Social Security Alone

Some seniors are forced to retire on Social Security alone in the absence of having savings. And it’s fair to assume that people in that boat are likely to struggle financially, to some degree.

If you earn an average wage, you can expect Social Security to replace about 40% of your pre-retirement salary. This assumes that benefits are not cut in the future, though, which might happen if Social Security’s trust funds run out of money.

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It may be possible to cut your spending in retirement so you’re able to get by on considerably less than 100% of your former paycheck. But a 60% pay cut is pretty extreme.

As a general convention, seniors are told to try to replace about 70% to 80% of their pre-retirement income for a comfortable lifestyle. So retiring on Social Security alone doesn’t come close to achieving that goal.

If you’re nearing retirement without savings, then existing on Social Security alone may soon become your reality. And while that’s not ideal, there’s at least one silver lining to look forward to.

You should at least get to keep your benefits in full

Many seniors are shocked to learn that Social Security benefits are taxable at the federal level. But those with low incomes can usually avoid those taxes.

In fact, whether you’ll pay taxes on your Social Security income or not will depend on your provisional income. That’s calculated as 50% of your annual Social Security benefit plus your non-Social Security income. But if you have no non-Social Security income, you’ll likely stay below the threshold of having benefits taxed.

If you’re single, you’ll face taxes on your Social Security benefits once your provisional income reaches $25,000. If you’re married filing jointly, that threshold rises to $32,000.

Meanwhile, the average monthly Social Security benefit right now is $1,848, and it’s rising to $1,907 in 2024. That’s $22,884, and half of that is $11,442. So if you’re in line for a similar benefit and that’s all the retirement income you have access to, you should expect to avoid taxes on your Social Security payments.

Meanwhile, let’s say you’re married and both you and your spouse are entitled to $22,884 a year in Social Security for a total of $45,768. That will still put you below the $32,000 threshold for taxes on benefits in the absence of other income (because remember, your provisional income accounts for 50% of what Social Security pays you annually, which, in this example, would only be $22,884).

It’s still best to have other income

Avoiding taxes on Social Security is not a good reason to specifically aim to retire on those benefits alone. But if that’s the situation you’re in, you can at least take comfort in the fact that the IRS probably won’t come after a portion of that income.

However, living on something in the ballpark of $22,884 a year, or even double if you’re married, could mean having to make a lot of cuts. So in that situation, even if it’s too late to build savings, you may still want to try boosting your income in other ways, such as working part-time.

Doing so may or may not cause your Social Security benefits to get taxed. But sometimes, it’s worth paying a little tax to get access to more income overall.

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