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In 2024, an average of about 68 million Americans will receive Social Security benefits each month, the primary source of income for people age 65 and older.
“Many people rely on their monthly Social Security checks to cover retirement necessities such as food, utilities and medical expenses,” said Loretta Kilday, senior attorney at Debt Consolidation Care. “With this safe money, you can pay your daily expenses.”
Many Americans rely on benefits as a safety net to cover the necessities of life, but retirement should be the time to achieve everything you’ve ever dreamed of, and you don’t have to stress about how to pay for it. .
Try this: 9 ways frugal retirees spend their Social Security checks
Read more: Do this to ensure your retirement savings grow (investments are risk-free)
Thankfully, experts say there are ways to leverage Social Security to help you reach your retirement goals.
The main recommendations for making the most of these funds are:
Also see the changes coming to Social Security in 2024.
sponsor: Do you owe the IRS more than $10,000? Schedule a free consultation to see if you qualify for tax relief.
delay receiving benefits
One approach to leveraging Social Security for your retirement dreams is to delay taking your benefits, said David Brillant, a tax, trust and estate attorney at Brillant Law Firm.
“If you wait until age 70 instead of starting at age 62 or full retirement age, you can significantly increase your monthly benefits,” he said.
For example, he said, delaying Social Security benefits can increase your monthly payments by up to 8% annually after you reach full retirement age.
“This has the remarkable compounding effect of providing tens of thousands of dollars in additional income over your retirement lifetime, which you can then invest in a diversified portfolio or real estate to build further wealth.”
Mike Kojonen, a financial advisor and owner of Principal Preservation Services, recommends a two-step approach: delay, then invest.
“You can strategically invest this additional income in various vehicles such as the stock market or real estate to further increase your retirement savings.”
By carefully timing your Social Security payments and integrating them with a sound investment strategy, you can leverage these benefits to cover your basic retirement needs and fund bigger retirement dreams. He said it would be possible.
Invest your Social Security benefits in stocks
Investing your Social Security benefits in stocks is a smart move to grow your wealth over the long term, says Ashley Vincent, financial expert and owner of Home Investors.
“It’s important to think about your own tolerance for risk and what you want to achieve with your investments,” says Vincent. “If you are aiming for steady growth over the long term, it may be better to stick to reliable blue-chip companies and index funds rather than chasing short-term profits.
“How much profit you can make depends on factors such as how much you invest, what you invest in, and how the market as a whole performs.”
For example, if you invested $10,000 in a mix of stocks, never added any more, and the average annual return was 7%, you would have about $25,000 after 14 years.
Using Social Security benefits as a wealth-building tool through stock market investing requires a strategic approach, but experts caution.
“First, it’s important to understand that Social Security is designed to provide a financial safety net in retirement, and that investing always comes with inherent risks,” said Jonathan, Best Daily’s Chief Financial Officer・Mr. Rogers stated. “Individuals should prioritize securing their basic needs with Social Security before considering investments.”
Reinvest in a well-diversified portfolio
“In practice, I have seen clients achieve remarkable success by reinvesting their generous Social Security benefits into well-diversified portfolios,” Kojonen said. “For example, one couple deferred benefits until age 70 and put this additional income into a combination of index funds and high-dividend stocks.”
He said this measure further strengthened his financial security, increased his sources of income and significantly contributed to the quality of his retirement lifestyle.
“This strategic approach not only took advantage of the guaranteed increases provided by Social Security, but also took advantage of market growth,” Kojonen said.
Mr. Rogers agreed, pointing out that putting some of your savings and other income into a diversified investment portfolio that includes stocks can compound over time.
“Historically, the stock market has produced an average annual return of about 7 to 10 percent,” he explained. “Assuming an individual chooses to delay enrolling in Social Security, contributing an additional $10,000 a year to a well-managed investment portfolio earning an 8% rate of return will result in an additional $100,000 by the time an individual reaches age 70. You could potentially make more than a dollar.”
However, he said it’s important to recognize that stock markets can fluctuate and returns are not guaranteed.
For this reason, he recommends turning to a professional financial advisor who can consider your personal situation and come up with a comprehensive, personalized retirement plan and investment strategy.
Optimization of spousal benefits
“Another strategy that I’ve seen work includes tailoring benefits for married couples,” Brilant said.
He said optimizing benefits for higher earners to be delayed as much as possible and for lower income spouses to start receiving benefits earlier will help maximize the couple’s combined benefits.
“This allows some of your immediate income to be invested in tax-advantaged accounts or other vehicles such as dividend-paying stocks or bonds, potentially providing an additional source of income in retirement. There is a sex.”
Consider tax implications
“From our experience with tax law, it’s important to consider the tax implications of your Social Security benefits and investment choices,” warns Brilant.
Knowing how and when to incorporate these benefits into your overall retirement strategy is just as important as the investments themselves, he said.
“For example, restructuring investments to benefit from long-term capital gains tax rates and understanding Social Security benefit tax standards can help preserve more assets for retirement or investment purposes. Masu.”
Start small but stay consistent
“Even a small investment of $150 to $200 a month can turn into more than $50,000 in cash in 20 years,” Kilday said. “That’s because if you keep your money invested over the long term, the power of interest will increase your profits and double your original savings.
“Social Security provides basic living assistance, but investing your surplus funds wisely can create significant bonus wealth that allows you to travel more, help your grandchildren, and enjoy your hobbies.” The idea is therefore to view your Social Security income as a security blanket, giving you the freedom to pursue more rewards through stocks and funds without worrying about running out of money.
“If you are disciplined, investing little by little can pay off hugely later.”
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This article originally appeared on GOBankingRates.com: 6 Ways to Use Social Security to Fund Your Retirement Dreams
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