Once the paychecks stop and you retire, you need money from somewhere. Social Security is an important income source for most seniors because if you qualify for benefits, the funds are guaranteed until you die.
So, how can you use Social Security to bankroll your retirement? Here are three steps to take.
1. Be realistic about what Social Security can do
The first and most important part of planning for a secure retirement with Social Security is realizing that your benefits alone won’t cut it.
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Most people replace about 40% of their 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—you’ll need supplemental funding 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 many people, this 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, the decisions you make throughout your life have a big impact on how much money these benefits actually provide. In fact, if your goal is to maximize your retirement checks, you’ll want to be sure you’re focused on maximizing your income and earning as many years as possible.
Your Social Security benefits are based on a percentage of your inflation-adjusted average wages over the 35 years you earned the most money. So, look for ways to bring in extra cash early in your career and try to increase your earning power by asking for a promotion or raise and looking for better job opportunities.
If you’ve managed to increase your income over time, you should also consider working longer at your higher-paying job. If you do, some of these high-earning years can become part of the 35-year period used to calculate your benefits, pushing out a few years when you earn less, so these lower-earning years don’t drag down your average salary.
3. Rack up your delayed retirement credits
Finally, there’s one more thing you can do later in life that will have a big impact on how far your Social Security benefits go. You can wait to claim them. You are first eligible to start taking Social Security checks at age 62. However, for every year you delay starting your check until 70, you increase the amount of money coming in.
You have a set full retirement age, which depends on when you were born. If you start taking checks earlier than this, benefits are reduced — if you receive your first payment at 62 and your FRA is 67. If you delay, on the other hand, it’s possible to increase benefits for each month you wait. 70. So, if you have an FRA of 67 and you wait, you can increase your payment by up to 24%.
Delaying filing for benefits as long as possible ends up being the best option for most seniors, even if it means missing some checks early. So, consider procrastinating if it’s possible for you.
By taking these steps, you can ensure that your Social Security benefits, along with the savings you set aside for your future, give you plenty of money to live on.
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