When the program was concocted in the mid-1930s, it was designed to provide benefits for elderly workers who could no longer provide for themselves. Back then, this was a relatively small group of workers, and the average life expectancy was considerably lower. Today, 63 million people receive a monthly benefit check (nearly 44 million of whom are retired workers), and the average 65-year-old is on track to live another two decades. In other words, Social Security has very much become a vital income stream for our nation's elderly for what's often an extended period of time.
However, the income stream the average beneficiary receives from Social Security could seem like a pot of gold or a pittance, depending on where they live within the United States.
According to data released in February by the Social Security Administration, the average retired worker was netting almost $1,464 a month in benefits. Meanwhile, the average nondisabled survivor benefit to widows or widowers and to disabled workers clocked in at $1,390 and $1,234, respectively. If we were to average all of the 63 million benefit checks issued monthly, the average Social Security benefit is $1,344.38 a month, or about $16,133 a year.
This amount is enough to pull more than 15 million elderly Americans out of poverty each year, but it's also just 29 percent higher than the federal poverty level of $12,490 in earned income for 2019.
One of the biggest differentiating factors with regard to how far your Social Security dollars will stretch is the state you call home. That's because $1 in one state may not buy you the same amount of goods and services in another.
With this in mind, I turned to 2016 data provided by the Bureau of Economic Analysis (BEA) that compared income and cost of living in all 50 states. Using a base value of 100 to signify an "average" value for a specific cost across the country, the BEA was able to rank each state from highest to lowest in terms of cost.
However, rather than just accept the BEA's rankings, which focus on all American households, I homed in on one spending category: rent. That's because housing costs are easily the highest expenditure for our nation's senior citizens (even more so than for working-age Americans as a percentage of expenditures), and more seniors than ever have been turning to renting -- or entering retirement with mortgage debt -- than ever before.
Utilizing the BEA's real purchasing power index for rental costs, the following 10 states should allow the average Social Security benefit to stretch the farthest:
- Alabama: 63.2 percent
- West Virginia: 63.2 percent
- Arkansas: 63.8 percent
- Mississippi: 65 percent
- Kentucky: 67.1percent
- South Dakota: 69.3 percent
- Oklahoma: 70.1 percent
- Ohio: 72.8 percent
- Missouri: 73.1 percent
- Indiana: 73.9 percent
The percentages next to each state represent the real purchasing power of that item (in this case, rent) relative to regional price parities. In English, it just means that states like Alabama and West Virginia offer average rental rates that are almost 37 percent (100 minus 63.2) below the national average. Living in any of the above states would allow a Social Security beneficiary to pay rent that's, at minimum, 26 percent below the national average.