When Social Security was created, the idea was simple. After a lifetime of work, the program would replace about 40% of the income you earned while working. It was never meant to pay for everything but just enough to form a stable base in retirement. A new report from FinanceBuzz tell us that this promise, is strained, but not broken.
Looking at every US state, the personal finance site measured how far Social Security benefits actually go once retirees start paying real-world bills and expenses. The results show that while the promise is largely met on average, outcomes differ dramatically from state to state.
The 40% promise
Nationally, Social Security covers about 38% of retirees’ living expenses according to the analysis. “Across the country, we found that it covers about 38% of expenses, on average,” said Josh Koebert, FinanceBuzz researcher to USA Today. “In about half the country, it meets that 40% standard that they’re shooting for.” In fact, 24 states meet or exceed the 40% mark, meaning Social Security alone pays for at least two out of every five dollars retirees spend each year in those places.
Where social security goes the furthest
The state where Social Security stretches the most is Kansas, where the average annual benefit covers nearly 45% of retirement expenses. That is well above the original design goal.
Kansas retirees face average annual retirement expenses of $54,961, while the average Social Security payment is $24,603, covering 44.8% of costs. Oklahoma follows closely, with Social Security covering 44.1% of expenses on average. Indiana comes next at 43.5%, followed by Minnesota at 43%.
Iowa retirees see about 42.8% of their expenses covered, Nebraska stands at 42.5%. Alabama follows at 42.3%, Missouri and Michigan both sit at 42.2%, and Tennessee rounds out the top 10 at 42%. These states tend to have lower housing and daily living costs, especially outside major cities, allowing a fixed Social Security check to go further.
Where social security makes a dent
At the other extreme is Hawaii, where Social Security covers just 21.3% of retirement expenses, barely one-fifth.
According to the study, in Hawaii, average retirement expenses soar to $111,097 a year, while the average Social Security payment is $23,634. Massachusetts ranks next worst, with Social Security covering 26.5% of expenses, followed by California at 27.1%.
The District of Columbia comes in at 28.6%, Alaska at 29%, and New York at 30.5%. Maine retirees see 31.9% of their costs covered, Montana 33.3%, Oregon 34.4%, and Vermont 34.6%. These places share one thing in common, high costs of living, especially for housing, healthcare, and everyday goods.
Why retirees don’t always go for cheaper states
Retire in a cheaper state, and Social Security covers more of your life could be an ideal thought.
“Live and work in a place where you get paid a lot and can contribute a lot, and then move to a place where there’s a lower cost of retirement,” Koebert said to USA Today.
Yet retirees don’t always follow that logic.
Nearly two-fifths of Americans move when they retire, according to the Transamerica Center for Retirement Studies, often to downsize. But they are not all flocking to the cheapest states.
The top retirement destination in 2024 was Massachusetts, according to a report from AARP, even though it is one of the states where Social Security stretches the least. Other popular destinations include Florida, Illinois, and Kentucky, which have more moderate living costs but still offer amenities retirees value. Experts say retirement decisions are not just about spreadsheets.
“Housing in rural Florida costs less than in Manhattan,” said Matthew Spiegel, a finance professor at Yale University, speaking in the report. “But if our hypothetical retiree wants to attend Broadway shows and Knicks games regularly, the frequent flights from rural Florida to Manhattan will quickly become costly in terms of time and money. Now that rural house is not so cheap.”