"Please write an article telling people with less than $15,000 a year of retirement income how they are supposed to survive." -- R.S., by e-mail
Millions of people face this predicament. According to the Social Security Administration, Social Security benefits account for 90% of income for four of every 10 unmarried retirees and two of every 10 married couples.
Another report on the Social Security Web site tells us that the average Social Security benefit for a retired worker is now $1,158.10 a month. That's before the Medicare part B premium of $96.40.
The solution here isn't more money or another government program.
The solution is social. It is called sharing, having enough social skills to multiply your effective income to a level far greater than it could be made with ordinary cash.
The prosperity of the past 50 years has raised our expectations. We want to own our house, to have our own bedroom, our own bathroom, our own car, our own phone (preferably mobile) and our own TV, and we want to eat what we want for dinner, not what everyone else is having. That makes life very expensive.
The productive social alternative is sharing. Economists call it "economies of shared living." Most of us think about it in regard to marriage.
Though two people can't live for the price of one, the cost of living doesn't double when you get married. Divorce, on the other hand, involves returning to the dis-economies of nonshared living. That's why it's common for one ex-spouse, or both, to have a lower standard of living after divorce.
Now let's examine how economies of shared living can benefit a retiree.
The benefits of sharing expenses
Now let's imagine the same person as she creates a "family" of retirees. She has a 1,400-square-foot double-wide trailer with four bedrooms and two bathrooms. Let's see how things change as she builds her household and income is pooled to share expenses:- With one roommate with the same net income, household income doubles to $2,200. That leaves $1,500 after shelter expenses. That's tight, but two people can eat and buy other necessities with $1,500 a month. In effect, each person has $750 a month to live on after shelter expenses, simply by living together.
- Add a second roommate, and income triples to $3,300. That leaves $2,600 after shelter expenses. Each person has $867 a month for living expenses beyond shelter.
- Add a third roommate, and income quadruples to $4,400. This leaves $3,700 after shelter expenses. With this much shared income, each person has $925 a month.
There are limits to this, of course, but the cost of shelter is the beginning of communal sharing, not the end. The same group of four could share meals, a car and anything else they could agree on. Suppose, for instance, the group decided to share a car that cost an average of $300 a month. And suppose food costs $400 a month for the first person and $200 a month for each additional person. What happens?
Do that, and the single person living alone goes from a deficit of $300 a month to a surplus of $300 a month -- just by sharing with one person. Build the community to four people, and each would have a monthly cash surplus of $600 a month. That's $600 a month after food, shelter and transportation.
These four retirees would have group income of $52,800 a year on which they paid no taxes. Though their individual income was at the poverty level, their collective income is slightly higher than the median pretax income of all American households -- $50,233 in 2007.
Note that this is not a utopian commune or a spiritual community. It's just four retirees figuring out how to get along in a trailer park. Some readers -- perhaps R.S. -- will say that making such arrangements isn't that easy.
They'd be right. But sharing offers a major "return" for being creative and flexible. Cooperation is a wonderful but generally overlooked substitute for money.
Questions about personal finance and investments may be e-mailed to scott@scottburns.com. Questions of general interest may be answered in future columns. More columns by Scott Burns can be found here and here.