In 2023, the average Social Security retirement benefit is estimated to be around $1,827 a month. With the right strategy, you can use these funds to multiply your retirement savings and achieve the comfortable retirement lifestyle you desire.
Here are five steps to maximize your Social Security benefits and achieve financial freedom during your golden years.
Delay Claiming Your Social Security
Omar A. Morillo, the founder and wealth advisor at Imperio Wealth Advisors, said, “One of the most effective ways to increase Social Security benefits is by delaying the age at which you claim. Although you generally become eligible for benefits at age 62, the monthly benefit amount increases yearly until age 70.”
How much your Social Security will increase each month that you delay claiming it depends on your birth year.
“By delaying the claim, you can significantly increase your monthly benefit amount, leading to larger cumulative payments over time,” Morillo added.
Understanding Spousal Benefits and Timing
If you’re married and want to use your Social Security to multiply your retirement savings, consider exploring spousal benefits. Morillo said, “If one spouse has a significantly higher lifetime earnings record than the other, the lower-earning spouse can claim a spousal benefit, typically equal to 50% of the higher-earning spouse’s benefit.”
According to the Social Security Administration, you can collect spousal benefits as early as age 62, but your benefits will be reduced if you start collecting before reaching full retirement age. Also, if you qualify for your own retirement benefit and it’s higher than the spousal benefit, you’ll receive that amount instead.
For example, if your spouse’s monthly Social Security check is $2,000, you can claim 50%, or $1,000, in spousal benefits if you wait until retirement age. But if your own retirement benefit is $1,200, you’d get the $1,200 instead of $1,000, since it’s higher.
So, if your partner out-earns you substantially, it may be worth taking advantage of spousal benefits to maximize your retirement savings.
Employment and Earnings Considerations
If you’re planning to retire during the height of your career, you may want to give it a second thought.
Morillo said, “Social Security benefit calculations are based on an individual’s highest 35 years of earnings. Continuing to work and earning more during those years can replace lower-earning years from the past and consequently increase your benefit amount.”
However, only income up to the maximum taxable earnings — $160,200 in 2023 — is counted. So, before calling it quits on your career, take a moment to think about how a few more years of work could significantly enhance your retirement funds.
If you’re 18 or older, you can create a personal account at ssa.gov/myaccount to review your earnings record to ensure it’s correct. The account will also give you access to the online Social Security Statement, where you can see your retirement benefit estimates so you can plan ahead for your future. However, Morillo pointed out that it’s important to be mindful of the Social Security Earnings Test Exempt Amount if you plan to continue working and file a benefits claim before reaching full retirement age.
Maximizing Other Retirement Savings Vehicles
Although Social Security income benefits are an essential part of retirement income, they should not be your sole source of funds during your golden years. Instead of only focusing on using your Social Security to multiply your retirement savings, Morillo said, “Proper retirement planning generally should include other retirement savings vehicles, such as a 401(k), Individual Retirement Account (IRA) or other tax-advantaged investment accounts.”
But how much money should you put into these retirement savings vehicles? Most financial experts recommend saving at least 15% of your annual pre-tax income for retirement. In other words, if you make $100,000, you should aim to stash away at least $15,000 each year.
Of course, how much to save for retirement also depends on the lifestyle you desire during your golden years. Financial planners often advise replacing around 80% of your pre-retirement income if you want to sustain the same lifestyle after retiring. So, if you currently make $120,000 annually, your retirement savings should generate a yearly income of $96,000 or more.
Consulting a Financial Planner
Because Social Security rules and strategies can be complex and may vary based on individual circumstances, Morillo recommends consulting a properly licensed and qualified financial advisor specializing in retirement planning. He said, “A certified financial planner can help you optimize your Social Security claiming strategy, create a comprehensive retirement plan and offer personalized advice based on your unique financial situation and goals.”
If you don’t have the budget to work with a CFP, don’t fret. Many banks and credit unions offer their customers free or low-cost financial resources. Your employer may also provide budgeting and financial planning tools to help you make the most of your workplace retirement plan. Other organizations that may offer free or discounted financial advice include The Foundation for Financial Planning and the Financial Counseling Association of America (FCAA).
Retirement Planning Is Not a One-Size-Fits-All Process
Everyone’s idea of a comfortable retirement is different. Some may envision a life of constant exploration and travel, while others may be content with a quiet life spent reading at home.
For this reason, CFP and founder of Billpin.com, James Allen, said, “When it comes to retirement planning, what works for one person may not work for another. So, always tailor your strategy to your individual needs and circumstances instead of following the crowd.”
He suggests taking the time to determine your retirement objectives before thinking about how to multiply your retirement savings with Social Security. By considering the lifestyle you want to lead during your golden years, you can approach retirement planning with a clear and personalized strategy.
More From GOBankingRates