My Comments: There is talk in Washington that future Social Security benefits will be cut. How real this is I have no idea. But the fact it’s even talked about suggests the threat today is higher than before. I’m not talking about what might happen in 2035, but in 2017.

If you are not yet 62, much less a few years away from your Full Retirement Age (FRA) you better consider that your future benefits from Social Security will not be as robust as you were led to believe.

Henry K. Hebeler | January 3, 2017

Here’s a do-it-yourself plan for low savers, but be aware than not even a professional planner can foresee all the financial surprises that occur in all of our lives that can come from such things as an elderly parent or other relative who needs help, a collapsing stock market, high inflation, disability, or living beyond our original estimate of life expectancy.

The list of unknowns is large, so we counter that by making a new plan as needed, just as a commander does when the enemy changes tactics. We’ll also cover some common ways to enhance retirement income. That said, a professional planner can add perspective and help on investments, insurance, estate planning and annual budgeting. Click through to see what you need to know.

Determine how much emergency money you will need
A fair estimate might be one year of your Social Security payments. The most likely use of much of this will be for uninsured dental, hearing and sight expenses.These are not covered by Medicare and most Medi-gap policies. Other emergency uses include replacement and maintenance of autos, plumbing, furnace, appliances and furnishings. Emergency funds might be a source to help a relative, make a sudden trip, and other things which might otherwise be unaffordable.

It’s not good to use credit for such items when retired. If you do not have an emergency fund, start building one, perhaps with a part-time job or make an allowance in your retirement budget to build one within a reasonably short number of years. Retirement debts are negative investments — mostly with higher interest rates than the rates retirees get from their portfolio.

I believe it’s good to retire without a mortgage, but if your interest rates are modest and the years to pay off the mortgage are not more than a decade away, I’d not use savings to pay the remaining mortgage. When it does gets paid, they’re be some extra funds available to compensate for inflation, the constant need for home maintenance and ever increasing medical costs.

Calculate the amount of your savings that can be used for annual income
To get that, start with your current savings. Then subtract emergency funds, any debts other than your mortgage, and any known commitments for large cash outlays. Further subtract any savings you would use to reach the age you will start Social Security.

To calculate the annual income you can get from the residual savings, divide the net savings by your remaining retirement life expectancy. You can get a personal life-expectancy estimate from sites such as http://www.livingto100.com.

For example: $300,000 savings less $100,000 for emergency funds, credit-card debt and delayed Social Security leaves $200,000. If you take $200,000 net savings divided by a life expectancy of 20 years, you would get an annual inflation-adjusted budget from savings of $10,000 if you can invest with a return equal or greater than inflation.

If you will get a pension, calculate the annual value accounting for whatever reductions come from choosing a survival benefit for your spouse
If it is not a cost-of-living-adjusted (COLA) pension, multiply the annual amount by your current age divided by 100. This is an approximate way of making a COLA adjustment because you then will be setting aside part of your pension to be used later to compensate for inflation. Example:$20,000 annual fixed-payment times 65 for this retirement age divided by 100 = $13,000 pension for this do-it-yourself calculation.

Get your annual Social Security income from http://www.ssa.gov. If you have a spouse, add the spouse’s Social Security income which you can get from the same site with both of your Social Security numbers.

The primary earner must file before a spousal benefit is payable. Usually a lower-earning spouse gets 50% of the primary earner’s full-retirement-age benefit if the spouse starts at the spouse’s full retirement age and less if starting earlier.

Add the annual amounts you can get from savings, pension and Social Security
This is your pre-tax annual source of retirement funds from which you can determine a budget based on the retirement conditions you foresee. Unlike the federal government, you cannot spend more than this, so figure out a budget distribution that fits your income level. If it’s at all possible while still working, try living on this budget for six months to refine the numbers.

The bad news
One of the major differences between budgets when working and retirement is health insurance because employers have paid the lion’s share for you. Now you will have to pay for Medicare, a Medigap policy and the uninsured charges — usually dental, ear and eye-care costs as well as what might be a large deductible before the insurance will pay anything. Fidelity estimates that the total retirement costs for health insurance, Medicare and uninsured bills will be $260,000. This does not include long-term-care, which Fidelity says average $130,000 per couple. This often leads to Medicaid for those who have spent their assets down to a few thousand dollars. Not all doctors and facilities for the aged will accept Medicaid, so if this looks like part of the journey you may have to take, do some detailed research on welfare for your location and dentists willing to do pro bono work.

There’s some hope for low savers

Part-time jobs are a common source of additional income, but become more difficult for the elderly.

Home downsizing, done early rather than late, can add to retirement savings as well as reduced-living costs. Some live with relatives or even friends to reduce cash outflows. Moving to another location might have lower costs and benefit from a nearby relative that might provide some assistance.
By far, the best thing that low-saving people can do is to delay the start of Social Security payments, whether it be by working longer or using savings to support the delay. It is virtually impossible to count on investments to beat the lifetime benefits from the 6% to 8% increase each year of Social Security delay plus an inflation boost, especially when the generous spousal and survivor benefits are included. The primary earner gets a 67% lifetime boost in Social Security income when starting at 70 instead of 62. Further, it’s impossible to beat Social Security’s longevity benefits with insurance. And Social Security benefits from a lower tax rate.

Few people know that even after you have started Social Security, you can suspend Social Security payments as long as you are more than your full-retirement age, but less than 70 years old. Each year of suspension will increase benefits by 8% from the payment amounts the year suspension began. And each of those years will bring lifetime inflation increases. See www.ssa.gov for more information.