While all Americans are eligible for Social Security payments once they reach retirement age, the amount these benefits can cover varies greatly depending on where they live. Individuals who live in low-cost areas can make their Social Security checks last longer, reducing the need for large independent retirement savings.
GoBankingRates recently conducted a study to rank states based on how long retirees’ Social Security benefits are likely to last. The states where retirees can expect their benefits to go the furthest are West Virginia, Oklahoma, Kansas, Alabama, and Mississippi. In these areas, Social Security benefits combined with retirement savings are expected to last between 26.19 and 28.8 years.
“There are few surprises here,” said Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, during an interview. “In general, states with a lower cost of living are where you can stretch your Social Security benefits further, while those with a higher cost of living see those funds get used the quickest.”
On the other end of the spectrum, retirees in states with higher cost of living are expected to see their benefits deplete more quickly. Hawaii, California, Massachusetts, Alaska, and New York are the five states with the worst outcomes for Social Security recipients.
In these high-cost areas, the study discovered that Social Security benefits combined with $750,000 in retirement savings are expected to last between 8.8 and 15.38 years.
To estimate how long funds would last, the study used a hypothetical $750,000 retirement savings amount combined with the average Social Security payment. However, it is worth noting that this figure is significantly higher than many Americans’ retirement savings.
According to a Federal Reserve survey, the average retirement savings for households aged 65 to 74 is around $609,230. The median retirement savings is approximately $200,000.
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Other factors that can help increase Social Security benefits
Individuals can increase their Social Security payments by delaying when they begin collecting benefits, but this should be done after careful consideration of their personal financial and health situations.
For example, waiting until age 70 to claim Social Security results in a 24% increase in payments. However, claiming benefits as early as age 62 reduces payments by 35% when compared to what could be earned at full retirement age.
In addition to the timing of Social Security claims, individuals who earned more during their working years receive higher benefits. However, as Beene pointed out, a variety of other factors can influence how far your Social Security benefits stretch during retirement.
“Factors like your house and vehicles being fully paid off and how much you have to spend on healthcare will ultimately be more crucial to your bottom line in retirement than your Social Security benefits,” Beene told me. “Yes, living in a state with a cheaper cost for many items certainly helps those funds to last longer, but if a portion of that check is going to other factors regardless, it may not equate to as much as you think.”
Another important consideration is the help retirees may receive from family members. Drew Powers, the founder of Powers Financial Group in Illinois, stated that having family nearby can have a significant financial impact.
“Having a loved one nearby who can perform basic home maintenance, go grocery shopping, or give rides to doctor’s appointments can save a retiree thousands per year if they would otherwise have to pay for these services,” according to Powers. “So, the list is a nice rule of thumb, but the final calculation is highly individualized.”