How does Social Security work?


It’s meant to cover a MAX of 40% of your income.

The rest is supposed to come from IRA  “skimming”. More on how that works in the next post.


Most people have not saved for retirement and are taking Social Security early at 62 instead of 67.
Taking it 5 years early means you may get 40% less money.

Let’s run a couple of Gen X scenarios with these stats:

*Most people make $27,000/year.
*Avg family income is $50,000/year
*At least 1 of a couple works 35 years.
*Social Security may be taxed federally AND by the state.

2 Gen Xers have not saved for retirement and both retire early at 62 and rely solely on Social Security for income. They still have house and car payments.

Social Security averages the highest of 35 years for the basis.
35 years of $27,000 to keep the math simple is $27,000.

Assume the other person took 10 years out of the workforce to raise kids.
25 years of $27,000
10 years of 0

To estimate your potential income, there is a handy calculator at

Person 1:


Person 2.


Total income is $25,817.

But do they need to pay taxes on this?

Probably not.

Some states like Colorado and New Mexico DO tax Social Security at particular incomes around $33,000. You might check to see if your state does here:

So, in.SCENARIO.1, what does the monthly budget look like?


Giving 10%: $216

Housing (mort, tax, ins.) 25% $538

Util  10%(elec, water, cable, trash)$216

Car payments: $970

uh oh.

We’re now at $1,934 and haven’t bought food yet.

We have $217 left.

Might need to sell the cars for a hoopty and not give….

What’s for dinner?
Hopefully not this:



yes it is.

What about SCENARIO 2:
House and cars are paid off:


Giving: $216
Housing (tax and ins.) $300
Utilities $216
Transportation (gas) $100
Food 4% $86 -you may be able to spend more here and other categories without debt.

$ remaining is $1,249

How much per month would you have if you waited until age 67?


Your base is more than $32,000 for a couple, so the federal govt will take some back over $32,000.

Maybe $1,000/year or more.

If you live in CO, it will cost you an additional $50/mo to live there.

What if you want to travel? Fish? Enjoy a hobby?

is $2,900/month enough for you?

What if it’s not?

This is where a retirement account and “skimming” comes in for the next post.



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