Once the paychecks stop because you retire, you need the money somewhere. Social Security is an important source of income for most seniors because if you are entitled to benefits, the funds are guaranteed until you die.
So how can you use Social Security to fund your retirement? Here are three steps to follow.
1. Be realistic about what Social Security can do
The first and most important part of your plan to have a secure retirement with Social Security is realizing that your benefits alone won’t be enough.
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Most people replace about 40% of pre-retirement income with their Social Security checks. Unless you think you can easily take a 60% pay cut – which most financial experts don’t believe possible – you’ll need additional funds from other sources.
So while you can (and should) try to get the most out of Social Security, you also need a plan to bring in money from other sources. For most people, that means investing in a 401(k), IRA, or other retirement savings account.
2. Increase your earning power
Although you can’t live on Social Security alone, your decisions throughout your life have a big impact on how much those benefits actually pay you. In fact, if your goal is to maximize your retirement checks, you’ll want to make sure you’re focused on increasing your income and earning as much as possible for as many years as possible.
Your Social Security benefits are based on a percentage of the inflation-adjusted average salary over the 35 years you earn the most money. So look for ways to earn extra money early in your career and try to increase your earning power by asking for promotions or raises and being on the lookout for better job opportunities.
If you’ve been able to increase your income over time, you should also consider working longer at your higher-paying job. If you do, some of those higher earning years may be part of the 35-year period used to calculate your benefits while pushing out some years where you earned less, so those higher earning years low do not lower your average salary.
3. Accumulate your deferred retirement bonuses
Finally, there is one more thing you can do later in life that will have a big impact on the extent of your Social Security benefits. You can wait to claim them. You are eligible to start Social Security checks at age 62. However, for every year you delay the start of your checks until age 70, you end up increasing the amount of money coming in.
You have a designated age for full retirement, which depends on your date of birth. If you start checks before, benefits decrease – up to 30% if you receive your first payment at age 62 when your FRA is 67. If you delay, on the other hand, it is possible to increase benefits for each month you wait up to 70. So you can increase payments by up to 24% if you have an FRA of 67 and are waiting.
Delaying claiming benefits for as long as possible ends up being the best choice for most seniors, even if it means missing some checks early on. So consider delaying if possible.
By taking these steps, you can hopefully ensure that Social Security benefits give you enough money to live on, as well as the savings you have set aside for your future.
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