Do you plan to rely on Social Security when you retire? These tactics can help.
For most retirees, Social Security payments are designed to provide a full or partial replacement of their pre-retirement income (often 40%). Taking a 60% pay cut would substantially scale down your standard of living level. Even so, it may be challenging to fund a comfortable retirement on Social Security alone.
Nevertheless, you may take steps to increase the value of your retirement income in your later years. If you plan on using Social Security as your primary or only source of income when you retire, consider the following three options.
1. Increase your monthly Social Security payment.
Suppose you expect Social Security benefits to constitute a major part of your retirement income. In that case, you should maximize the size of your payments. Several options exist for achieving this:
- Earning potential can be increased with time. Social Security payments are calculated as a share of median income. The more you earn (up to an annual wage base limit), the higher your benefit.
- You can plan strategies with your spouse. If your spouse earns far more than you did, the spousal benefit may be bigger than your benefit. Create a joint strategy for filing for Social Security benefits to increase the total amount you both receive.
- Social Security payouts can be delayed if necessary. Benefits start at age 62, but they grow every month up to age 70 if you can wait that long. Suppose you want to rely on Social Security income to finance your retirement. If you want to keep receiving your full benefit amount after reaching age 62, you should wait until age 70 to start collecting.
2. Pay as little as possible in taxes on your benefits.
Since the federal tax thresholds for Social Security payments are not raised to account for rising living costs, many retirees must pay federal income tax on their benefit checks.
No longer are the wealthy the only ones who have to worry about paying taxes on their Social Security benefits. You will have to pay taxes on at least some of your Social Security benefits if your total income (which includes half of your monthly payments plus other taxable and nontaxable income) is more than $25,000 if you file as a single taxpayer or $32,000 if you file as a married couple.
If you want to lessen the probability that you’ll lose some of your money to the IRS, invest in a Roth 401(k) or Roth IRA for your retirement instead of a standard account. Since Roth IRA withdrawals are not considered taxable income, you may be able to keep more of your hard-earned money in your pocket.
3. Consider your monthly Social Security payment when making financial plans.
Finally, if you intend to live mostly — or even exclusively — on Social Security, you must have a very tight budget. If you want to avoid paying a lot for housing, it’s important to have the mortgage paid off and settle in a low-tax location. To reduce healthcare expenditures, one should pick a low-priced insurance plan and relocate to an area with a low cost of living.
Despite your best efforts to save and invest, your Social Security benefits are intended to be something other than your entire source of income in retirement. You’re intended to replace roughly 40% or more of your wages with a pension and savings. If you’re a senior, you’ll need to downsize to a simpler living and have a small amount of money coming in from these other sources. Of course, you can also save more throughout your working life to fund your retirement with Social Security and other income streams and enjoy your older years instead of trying to live on a shoestring budget. It is preferable to do this versus continuing to get Social Security benefits.
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Bio:
After entering the financial services industry in 1994, it was a desire to guide people towards their financial independence that drove Aaron to start Steele Capital Management in 2013. Armed with an extensive background in financial planning and commercial banking coupled with a sincere passion for helping people, Aaron has the expertise and affinity for serving the unique needs of those in transition. Clients benefit from his objective financial solutions and education aligned solely with
helping them pursue the most comfortable financial life possible.
Born in Olympia, Washington, Aaron spent much of his childhood in Denver, Colorado. An area outside of Phoenix, Arizona, known as the East Valley, occupies a special place in Aaron’s heart. It is where he graduated from Arizona State University with a Bachelor of Science degree in Business Administration, started a family, and advanced his professional career.
Having now returned to his hometown of Olympia, and with the days of coaching his sons football and baseball teams behind him, he now has time to pursue his civic passions. Aaron is proud to serve on the Board of Regents Leadership for Thurston County as the Secretary and Treasurer for the Morningside area. His past affiliations include the West Olympia Rotary and has served on various committees for organizations throughout his community.
Aaron and his beautiful wife, Holly, a Registered Nurse, consider their greatest accomplishment having raised Thomas and Tate, their two intelligent and motivated sons. Their oldest son Tate is following in his father’s entrepreneurial footsteps and currently attends the Carson College of Business at Washington State University. Their beloved youngest son, Thomas, is a student at Olympia High School.
Focused on helping veterans and their families navigate the maze of long-term care solutions, Aaron specializes in customized strategies to avoid the financial crisis that care related expenses can create. Experience has shown him that many seniors are not prepared for the economic transition that takes place as they reach an advanced age.
With support from the American Academy of Benefit Planners – an organization with expertise and resources on the intricacies of government benefits – he helps clients close the gap between the cost of care and their income while protecting their assets from depletion.
Aaron can help you and your family to create, preserve and protect your legacy.
That’s making a difference.
Disclosure:
Disclosure:
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