When you’re retired and living on a fixed income, every dollar matters. If you rely on Social Security, you probably think a lot about how to stretch your money as much as possible.
When you’re budgeting for retirement, housing should be the first thing on your mind. It’s the biggest chunk of any budget. If you’re not careful, your mortgage or rent can easily stretch your monthly Social Security payment to the breaking point.
We spoke to financial and retirement experts to help get an idea of just how much home or apartment you’ll be able to afford while living on your Social Security check.
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A Rule of Thumb
One of the most common budgeting tips you’ll hear is that housing should only take up about 25 to 30% of your income. If you spend too much on rent or a mortgage, you could find it hard to pay for everything else, like food or healthcare. Following this rule is even more important when your main source of income is Social Security.
“The exact dollar amount of what you should be spending is going to vary from household to household depending on your income,” said Joe Schmitz Jr, founder and CEO of Peak Retirement Planning. “If you are relying on social security as your sole source of income, I would recommend falling closer to the 25% level, as you will likely need the liquidity in other areas of your budget. For example, If your social security benefit is $3,000 a month, you should look to spend between $750 to $900 a month in monthly mortgage or rent payments.”
You don’t want to be house-rich but cash-poor. You can avoid that by making sure housing isn’t taking up too much of your budget.
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What Does That Mean for You?
If you’re like most retirees, Social Security plays a substantial part in your income.
“As of August 2024, the average retirement benefit check for retired workers was $1,920,” said Stephen Kates on behalf of RetireGuide.com. “Leaving the down payment aside, this income could afford a home worth about $412,500. This is based on an 80% loan-to-value ratio and a $1,920 mortgage payment with a 5.75% interest rate. Taxes and insurance will be extra.”
Using the 25 to 30% rule, that means that a payment of $1,920 will let you spend about $480 to $576 on housing each month. Of course, how much you get from Social Security will be different. It’s based on your work history and when you decided to start receiving benefits.
If your Social Security check is higher, you may have more wiggle room in your housing budget, but the 25 to 30% rule still applies. And if your check is lower, you might have to be extra careful with your housing budget.
Changes in 2025
Starting in January 2025, Social Security recipients will get a small cost-of-living increase of 2.5% to their benefits. For example, if you’re getting the average monthly benefit of $1,920, the increase will change your payment to $1,968. That extra $48 is probably not going to make or break any decisions you make about your housing.
But you can slightly adjust your housing budget if necessary. Based on the 25 to 30% rule, you would now be able to spend $492 to $590 a month on housing.
Retire in an Area You Can Afford
Location plays a big part in how far your Social Security check will go. You probably want to stay where you’re already living, but it might not always be the most affordable option.
“Trying to live in expensive cities like New York where rent can easily be between $2,500 to $4,000 isn’t feasible for many retirees,” said Aaron Cirksena of MDRN Capital. “It makes more sense to consider more affordable areas. The key is keeping housing costs under 30% of your income.”
Moving probably seems like a hassle, but it can really be worth it if it frees up more of your budget while living on Social Security. If you’re open to it, look into towns or cities with lower property taxes and an overall lower cost of living.
“A high-cost area may be entirely out of reach,” Kates said. “Based on data from Apartments.com, studio apartments in the Boston, MA area begin at roughly $2,200 per month. Compare that to a location like Charlotte, NC, where studio apartments are more affordable and begin at roughly $1,300.”
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This article originally appeared on GOBankingRates.com: Finance Expert: Here’s How Much You Can Afford for Housing in 2025 on Social Security
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