Social Security Benefits Vary By State

Social Security benefits are a crucial part of financial planning for many Americans once they reach retirement age. However, the extent to which these benefits cover expenses heavily depends on the region and city where one lives. People residing in areas with a lower cost of living may find their Social Security payments stretch further, potentially reducing the need for large amounts of independent retirement savings.

A recent study conducted by GoBankingRates ranked U.S. states based on how far Social Security benefits would stretch for retirees. The study found that the states where retirees are most likely to see their Social Security benefits sustain them the longest include West Virginia, Oklahoma, Kansas, Alabama, and Mississippi. In these states, it is estimated that Social Security combined with retirement savings could last between 26.19 and 28.8 years.

Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, explained, “There are few surprises here. 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.” This reflects the reality that, in addition to everyday living expenses, real estate prices and taxes also influence how long retirement savings and Social Security will last. On the other hand, retirees in higher-cost states tend to see their benefits deplete faster.

The same GoBankingRates study found that states such as Hawaii, California, Massachusetts, Alaska, and New York were the least favorable for stretching Social Security benefits. In these states, the number of years that Social Security combined with retirement savings is expected to last ranges from 8.8 to 15.38 years. High costs in areas like housing, utilities, and taxes make it difficult for retirees to rely on their benefits for an extended period.

The study’s calculations were based on an assumed $750,000 in retirement savings in addition to the average Social Security payments.

Social Security benefits by location

This figure is notably higher than what many Americans actually have in their retirement accounts.

According to a Federal Reserve survey, the average household retirement savings for individuals aged 65 to 74 is approximately $609,230. However, the median retirement savings for this age group is significantly lower at around $200,000. This discrepancy between average and median savings highlights the financial challenges many retirees face, as the figures used in the study do not reflect the reality for a significant portion of Americans.

For the majority, the combination of Social Security benefits and retirement savings may not last nearly as long as the study projects. Delaying the age at which one begins to claim Social Security benefits can increase monthly payments, but this is not a viable strategy for everyone. Waiting until age 70 results in a 24% increase in benefits, while claiming as early as age 62 leads to a 35% reduction in payments compared to what one might receive if they waited.

However, as Beene pointed out, other factors can have an even more significant impact on how long benefits will last. “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. 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.”

Drew Powers, founder of Powers Financial Group in Illinois, added that the support network retirees have can make a substantial difference.

Family members living nearby can help alleviate costs that would otherwise be spent on services such as home maintenance, transportation, and grocery shopping. “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.”

Ultimately, while the GoBankingRates study provides valuable insights into how far Social Security benefits can stretch in different states, it is essential for individuals to consider their unique financial circumstances when planning for retirement. Factors such as personal savings, living expenses, healthcare costs, and support networks all play a role in determining how long one’s retirement funds will last.

By carefully evaluating these elements and making informed decisions, retirees can work towards ensuring their financial security in their golden years.