The great thing about Social Security is that it pays you a monthly benefit for life. And so the higher that benefit is, the more income you can look forward to.
There are different steps you can take to boost your Social Security benefit. Delaying your filing until age 70, for example, will allow you to claim a higher benefit, as will boosting your earnings throughout your career.
But as helpful as a higher Social Security benefit may be, in reality, you shouldn’t rely on that particular income source to sustain you in retirement. For one thing, Social Security is facing some financial challenges that could result in universal benefit cuts. And so even if you take steps to raise your benefit, you might still end up with less income from program down the line.
A better bet? Work on building yourself a solid nest egg. Chances are, it will do a lot more good than a higher Social Security check.
Secure your own future
The average senior on Social Security today collects $1,657 a month. All told, that’s about $20,000 a year. If you’re in line for a comparable benefit, you might manage to raise it to around $2,000 a month by delaying your filing until the age of 70, leaving yourself with more like $24,000 a year from Social Security.
But let’s face it — that’s still not a whole lot of money. In fact, even if you’re only an average earner, you’re probably used to living on at least double that sum. And if your wages are higher than the average American’s, you might really struggle in retirement on an annual income of $24,000 a year.
A solid nest egg, however, could come to your rescue, and you don’t need to sink half of your paycheck into your savings on a monthly basis to make a big difference. If you sock away $500 a month over the next 35 years, and you invest your retirement savings heavily in stocks, you might eke out an average annual 8% return, which is a bit below the stock market’s average. The would, in turn, leave you with a little more than $1 million.
Now, if you withdraw from your savings at a rate of 3.5% a year, that’s $35,000 in annual income. (For context, financial experts have long advocated a 4% withdrawal rate, but 3.5% is a bit more conservative and, for many people, more appropriate these days.) That, combined with Social Security, could make for a healthy financial picture.
Don’t ignore your nest egg
There’s absolutely nothing wrong with taking steps to boost your Social Security benefit. But you shouldn’t fixate on that and neglect your nest egg in the process, nor should you assume that if you snag a higher benefit, it’ll make up for a lack of savings.
Putting money into an IRA or 401(k) plan consistently, and investing that money wisely, could result in a retirement that’s free of financial worries. And isn’t that something you deserve?
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