Managing your finances in retirement can feel like a juggling act – or maybe walking the tightrope is a more apt circus analogy. And when that Social Security check comes in – it can be hard to know the best way to allocate that money.
Check Out: 8 States To Move to If You Don’t Want To Pay Taxes on Social Security
Try This: 7 Reasons You Shouldn’t Retire Before Speaking To a Financial Advisor
GOBankingRates spoke with Dutch Mendenhall, author and founder of RADD Companies, to get the scoop on how to leverage your Social Security benefits like a pro. There’s a lot of thought that goes into it and his advice is incredibly helpful.
Here are the bills you should pay with your Social Security check.
Also here is the average Social Security payment in every state.
The Basics: Cover Your Essentials First
Before we dive any deeper, let’s talk about the basics. Mendenhall thinks your primary approach should be to take care of the essentials first.
So, what does that mean for you? Simple:
1. Housing costs (rent or mortgage)
2. Utilities (electricity, water, gas)
3. Healthcare expenses (insurance premiums, medications)
These are your non-negotiables – cover them and then you can think about everything else.
Learn More: What a Middle-Class Social Security Check Could Look Like in 2025
The Smart Move: Ditch the Bad Debt
If you have credit card debt or a personal loan hanging around, now is the time to take care of it. Mendenhall thinks you should tackle these head-on with your Social Security check.
“Before focusing on investments, ensure you’re not burdened by high-interest debt like credit cards or personal loans,” he said. “These can quickly erode your financial stability. Use your Social Security payments to eliminate these obligations, freeing up more of your income for future investments and reducing financial stress.”
In other words, paying off high-interest debt is like giving yourself an instant raise. Who doesn’t want that?
The Power Play: Delay If You Can
Now, here’s where things get interesting. If you’re not quite at retirement age yet, Mendenhall has a tip that could seriously boost your future income.
“If you don’t immediately need your Social Security checks, consider delaying your benefits until age 70,” he noted. “The 8% annual increase offers a low-risk way to grow your future income, often outperforming many investment options, particularly in a volatile market.”
That’s right – by waiting, you’re essentially earning a guaranteed 8% return each year. If you can hold off, it quite literally pays.
The Investor’s Approach: Think Beyond Bills
If you’ve covered your basics and don’t have any high-interest debt, Mendenhall thinks you need to channel your inner investor.
“If you’ve managed to delay your benefits or find yourself with unneeded Social Security income, consider investing this money with a well-thought-out strategy,” he said. “Whether it’s in stocks, alternative investments, or other assets and ventures, ensure your investments align with your long-term financial goals.”
However, he warns that, “delaying Social Security often yields better returns than trying to match that guaranteed growth with market investments.” So, if you can: Delay, delay, delay.
The Tax-Savvy Strategy: Work the System
Here’s a pro tip from Mendenhall that you might not have considered: use your Social Security checks strategically to lower your tax burden.
“Consider the tax implications when deciding whether to spend or invest your Social Security checks,” he noted. “Social Security benefits are taxed more favorably than withdrawals from retirement accounts.”
He adds that you could use these checks for living expenses while allowing tax-deferred accounts to grow or strategically withdraw from accounts like a Roth IRA, 401(k), or even 1031 Exchanges, which offers tax-free withdrawals. To put it simply? Your Social Security might be your most tax-friendly income source and one that you should use wisely.
The Forward-Thinking Approach: Stay Informed
Finally, Mendenhall reminds us that the world of Social Security isn’t static. “Stay informed on Social Security legislation, as current efforts like the Social Security 2100 Act could enhance benefits and ensure long-term solvency,” he noted.
What does this mean for you? Keep your ear to the ground and be ready to adjust your strategy as needed. “Prepare for potential changes by diversifying your income sources and investing in tax-advantaged accounts to secure your financial future,” Mendenhall advised.
The Final Word
So, there you have it! Your Social Security check should absolutely cover your essential bills first, but there’s so much more you can do with it – including paying off debt, investing for the future, and working the tax system to your advantage, if you can. You just have to think strategically about your needs and goals.
As Mendenhall put it, “Through these methods, you can achieve financial freedom and create a lasting legacy for your family or community. This approach not only secures your financial future but also redefines what it means to be wealthy in America through smart financial education and empowerment.”
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This article originally appeared on GOBankingRates.com: 8 Bills You Should Pay With Your Social Security Check
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
