Updated on 09.09.14

Trimming the Average Budget: Pensions and Social Security

Trent Hamm

Pensions, Social Security – $5,027/year

For the most part, there’s not much the average American can do to alter the amount of money they pay for Social Security and for pensions. For most of us, this is merely a paycheck deduction, something we never see in our take-home pay.

Yet there are several things we can do to increase the value of that money or to secure it. Here are some options that you might want to consider.

Cutting Down Your Pension & Social Security Spending

Insure your pension

Many corporations have played games with the pensions long-promised to their employees. If this is a concern to you, you can insure your pension so that you’re not at risk of losing it. The Pension Benefit Guaranty Corporation (http://www.pbgc.gov/) can help you get started in this regard.

Know what Social Security benefits you’re entitled to

The Social Security Administration mails this information to most citizens annually. Study this information and know what you’re due to receive so you can plan accordingly. If you don’t have access to this information, check www.socialsecurity.gov.

Know how much money you’ll actually need in retirement

Spend some time utilizing retirement planning tools (I like this tool at MSN Money) so that you know exactly how much money you’ll need in retirement. Use this number to see if you’ll be meeting your needs or not. If not, now’s the time to start socking away more (which we’ll address in another section of this series).

Minimize your requirements

If you’re finding that you’re far short of what you need, you may want to consider minimizing your financial requirements for the future. A big move in another area – like downsizing your home, particularly if it’s overly big now that the kids have moved out – can often create the breathing space you need.

At the same time, improve your self-sustainability

If you have money for it now, invest in things that will make your retirement years much more self-sustaining. Instead of buying a new car, invest in geothermal heating. Instead of redoing the kitchen, look into a small wind turbine. Learn how to garden and to cook. Such assets and skills can drastically reduce your spending.

Develop a “second career”

If you’re still intending to take advantage of your pension as early as you can, consider developing a “second career” that will provide some income while allowing you to engage in something you’re passionate about. There are many jobs and entrepreneurial activities – from tour guide to caterer – that can match exactly what you enjoy while still bringing in some extra income.

Share resources and ideas

Don’t be afraid to talk about your money with people in the same boat as you are. Share ideas with your friends and other people nearing retirement age. Don’t take on your concerns and worries about retirement in isolation – quite often, the people you care about most are facing similar concerns of their own, even if you don’t see it from the outside.

I want your help! In the comments, please let me know which of the tips you find most useful for trimming these costs. I’ll include the top choices in a comprehensive budget trimming guide at the conclusion of the series.

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  1. Angie says:

    Trent – in the italicized paragraph at the bottom, I assume to mean “pension and Social Security” instead of “shelter,” correct?

  2. chacha1 says:

    I think this was an interesting way to address this slice of the “average American budget.” It’s never too early for people to start thinking of how they’ll pay to live during the years after they stop working.

    I’d say the most effective of the tips above, for most people, will be to minimize requirements and to develop self-sustainability. Right now, for example, my parents (retired) live in a very expensive, very inefficient, very oversized house on a property where they don’t have the option of growing a meaningful amount of their own food – even though they work, hard, outside almost every day. I’m shooting for a retirement in a small, efficient home with enough land to have a serious garden and some laying hens.

    It’s true, most of us have very few options for reducing what we pay in Social Security tax; but one good way that wasn’t really addressed is by maximizing pre-tax contributions to 401(k), IRA, or HSA accounts. I think it’s well worth reducing current income in order to save current taxes *and* ensure future income.

  3. Des says:


    401(k), IRA, and HSA contributions do not lower your Social Security or Medicare tax. They only lower your Federal taxes.

  4. George says:

    To lower your Social Security “tax” (it’s not really a tax in the usual sense as many people of the people who currently pay in actually will get money out of it), reduce the percentage of your income which comes from employment.

    How do you do that? By increasing your investments/savings. The other option, of having a lower income, is not usually worth considering :-)

  5. The smart thing is as you say, make your requirements for retirement as small as possible.

    John DeFlumeri Jr

  6. Jim says:

    Pensions are generally automatically insured by the Pension Benefit Guarantee Corporation (PBGC). The PBGC acts like the FDIC. It insures defined benefit pensions but not 401k’s. You either have it or you don’t and mostly everyone with a traditional pension has PBGC coverage. Its not something you can add optionally or individually.

  7. brad says:

    @ 6 jim

    thanks for clearing that up. im pretty sure thats how it worked, but his paragraph confused me. i was thinking maybe he was talking to employers in that one? *shrug*

  8. Shevy says:

    This is one of the areas where many people should be allocating *more* money, not less. The amount of SSI (or CPP for us Canadians) taken off our paycheques is directly related to the amount of money we earn but there are supplemental retirement savings plans available. The problem is, not everybody takes advantage of these plans.

    Whether or not Social Security or Canada Pension are around when we all retire it’s important to have as many options available as possible.

    My best tip would be:
    If your company has a pension plan that offers a match, always take it, even if you have to cut back somewhere else in order to get the full match.

  9. lurker carl says:

    Trimming the budget needs to occur long before retiring. Living frugally for all those decades before retiring allows you to sock away a significant percentage of your lifetime earnings into accounts that will grow to astounding levels due to compounding interest.

    Most people grouse about spending too much money. I have never heard anyone complain they saved too much.

  10. Debbie M says:

    I love the idea of increasing the value and security of this money. But that makes me think:
    1) invest your company retirement money in low-cost, secure investments
    2) diversify – don’t put all your money in one place and cash out company stock to move it to a mutual fund as soon as you are allowed to
    3) don’t take loans on your retirement money if you can find a better way to handle a cash flow problem (look hard and long for a better way!)
    4) don’t withdraw the money in such a way that you pay a fine
    5) when you switch jobs, rollover your old retirement funds into an IRA and switch them to lower-cost and/or more secure investments
    6) include the retirement plan in your evaluations of job offers
    7) if your options suck, contribute only the amount needed to get company matching and put the rest in IRAs.
    8) if your options suck, look into a second income from self employment which you can put into additional self-employment vehicles
    9) put some of your money in regular vehicles and some in Roth vehicles so that whether your tax rate goes up or down, you win

    My favorite tip of yours is to share resources and ideas. Especially with co-workers. This is especially easy to bring up at retirement parties. And when you find out someone’s about to retire, you can ask them questions about their techniques along with questions about what they will be doing next.

  11. kristine says:

    #7 Brad,

    I agree- the PBGC is not something an individual can use as are source. It is only there, or not, through one’s employer. I hate that kind of mistake in a blog- it makes me wonder how well researched the rest of the talking points and entries are. A retraction/clarification is called for, to prevent people wasting time and energy calling the PBGC. If there is another kind of pension insurance- I’d love to hear about it. I find this blog best for mundane how-tos that the author has used himself, basic common sense reminders/refreshers, and links.

  12. Allison says:

    What I’m really scared about is there not being Social Security for me to use by the time I retire (roughly 25 years). So I have to put all this money into the system and then there no longer seems to be a guarantee that it will be there when it’s my turn.

    My company doesn’t OFFER a 401K, so I’ve been researching (thanks, Trent) what to do instead. 25 years is a long ways away when I look at whether SS will be there or not. But is NOT enough time when I realize I may need an entirely different game plan.

    It used to be that I was fairly confident we could live off of our SS because with 25 years left to go, we ALREADY will get enough SS to keep a fairly comfortable lifestyle — because we are frugal NOW. But the way things are in the world, well… hmph.

  13. chacha1 says:

    @ Des #3, thanks for the correction!

    @ Allison #12, I’d be surprised if SS isn’t salvaged in the next 25-30 years, at least to the extent of a guaranteed minimum benefit. It may well be that I don’t get the payment I’m currently “entitled to” (if I go by my SS statement), but I’m fairly certain that by the time I want benefits there will still be *something* available for me (I’ll be 70 in 2035).

    My prediction is the US government is more likely to cut retiree healthcare benefits than to cut retirement income-security benefits. Simply because there’s all kinds of reasons why someone might be broke in old age, and not all of them are self-inflicted.

    Whereas, coldly stated, ill-health in old age, in the US, often IS self-inflicted, as is excessive consumption of healthcare services. We do have to accept that the government can’t take care of all our needs, much less all our wants. Medicare coverage for Viagra? bariatric surgery? proven-to-be-ineffective back surgery? These things will have to go.

  14. George says:

    @Allison – I agree with chacha1 that some sort of fix will be implemented for SSI and it will likely take the form of reduced benefits. Forecasts for SS benefits 25 years from now suggest that we’re funded at the 75% level already.

  15. Bonnie says:

    #7&#11-I completely agree. There should be a retraction printed about the PBGC. Unlike the FDIC, which pays out bank depositors on a dollar-for-dollar basis, when the PBGC takes over a pension fund from a company, they usually pay out pennies on the dollar to retirees collecting pension benefits. So, even if your company is paying for PBGC insurance, it really doesn’t help much if your company goes out of business and the PBGC takes over your pension fund.

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