Social Security was never intended to fully fund a retirement. Yet today, many retirees are largely or completely dependent on that monthly benefit. Social Security currently provides 35% of retirees with 90% or more of their monthly income.
This unfortunate situation is largely the result of changes in employment benefits and lifestyles. Pensions, once the bedrock of retirement funding, are nearly extinct in the private sector, replaced by 401(k) and other programs that require us to take charge of our retirement and aggressively save towards that goal. Meanwhile we are living longer, having kids later in life and often taking care of aging parents – all in a volatile economy. These factors can play havoc with a couple’s retirement savings efforts.
If you find yourself facing the prospect of depending on Social Security in retirement, there are certain steps you can take to make the most of that situation.
1. Maximize Your Benefit
For starters, make sure that you work at least 35 years, even if that means delaying retirement. Social Security benefits are calculated based on your 35 highest-earning working years. Work less than 35 years and the deficit years go into the calculation as zero-income years, which will lower your benefit.
While you are working, maximize your income. You could accomplish this by asking for a raise or by taking a second job. Anything you do to boost your yearly income will pay off in the long run on your Social Security check. Want to check and see how you are doing? You can get a rough estimate or a detailed one with your personal information any time you’d like from the Social Security Administration’s website.
2. Delay the Start of Your Benefits
If you can wait to take your benefit, then wait. You want to make sure you wait until you are at least full retirement age to start claiming benefits. Choosing to take early distributions means your monthly benefit amount will be reduced for life. If you can, postpone tapping into your benefits until you are age 70. This will get you what the Social Security Administration calls “delayed retirement credits.” Your benefits increase 8 percent each year you delay taking Social Security income until age 70. Waiting until you hit 70 translates into about a third more income for life.
3. Relocate in Retirement
Consider moving to a less expensive area to reduce your retirement cost of living. This time-honored tradition helps explain the on-going migration of older Americans from places like New York and Massachusetts to Florida and North Carolina. There are any number of delightful small cities where you can live a rich life and cover your largest costs –- housing, food, et cetera – on what you and your spouse receive from Uncle Sam. If you are adventurous, consider moving overseas to any one of the Central and South American countries that welcome American retirees with warmth, gorgeous scenery, modern amenities and very affordable costs of living.
Ideally, Social Security will be just one revenue stream in your retirement income, along with savings, a part-time job and maybe some rental income. But life happens. If it does, know that by employing these strategies you can still have a healthy and rewarding post-career life courtesy of the benefits you are currently earning with every week and year of work.
Additionally, I suggest you head over to the Social Security Optimizer and input your family’s information to learn at a base level what you can do to maximize your benefits.