6 Ways To Use Social Security To Fund Your Retirement Dreams
In 2024, an average of almost 68 million Americans per month will receive Social Security retirement benefits, a major source of income for those over 65.
“Many people depend on monthly Social Security checks to cover essential costs like food, utilities and healthcare in retirement,” said Loretta Kilday, senior attorney at Debt Consolidation Care. “This secure money lets you pay daily expenses.”
Many Americans rely on their benefits as a safety net to cover essentials, but retirement should be a time when you finally do all of the things you’ve been dreaming of — not stressing over how you’ll pay for them.
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Thankfully, according to experts, there are ways to use your Social Security to achieve your retirement goals.
Here are their top recommendations for making the most out of those funds. Also, see the changes coming to Social Security in 2024.
Delay Your Benefits
One approach to leveraging Social Security for retirement dreams, according to David Brillant, a tax, trust and estate lawyer at Brillant Law Firm, is delaying your benefits onset.
“Waiting until the age of 70, rather than starting at 62 or your full retirement age, can significantly increase your monthly benefit,” said Brilliant.
For example, he said delaying Social Security benefits increases your monthly payments by up to 8% yearly after reaching full retirement age.
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“This results in a notable compound effect that can offer tens of thousands of dollars in additional income over the lifespan of your retirement, which can then be invested in diversified portfolios or real estate to further build wealth,” said Brilliant.
Mike Kojonen, financial advisor and owner of Principal Preservation Services, recommends a two-step approach: delaying and then investing.
“This extra income can then be strategically invested in various instruments, such as the stock market or real estate, to grow retirement savings further,” said Kojonen.
By carefully timing your Social Security payments and integrating them with a solid investment strategy, he said, it’s possible to leverage these benefits to cover your basic retirement expenses and fund larger retirement dreams.
Invest Your Social Security Benefits in Stocks
According to Ashley Vincent, financial expert and owner of Home Investors, investing your Social Security benefits in stocks is a smart move to grow your wealth over time.
“It’s important to consider your own comfort with risk and what you want to achieve with your investments,” said Vincent. “If you’re aiming for steady growth over the long haul, sticking with reliable blue chip companies or index funds might suit you better than chasing short-term gains.
“How much you could potentially gain depends on factors like how much you invest, what you invest in and how the market performs overall.”
For instance, if you put $10,000 into a mix of stocks and added no more, and you saw an average annual return of 7%, you would have roughly $25,000 after 14 years.
While utilizing Social Security benefits as a wealth-building tool through stock market investing requires a strategic approach, experts advise caution.
“Firstly, it’s crucial to understand that Social Security is designed to provide a financial safety net during retirement, and investing always carries inherent risks,” said Jonathan Rodgers, CFA of BestDaily. “Individuals should prioritize securing their basic needs with Social Security before considering investment.”
Reinvest Into Well-Diversified Portfolios
“In practice, I’ve seen clients achieve remarkable success by reinvesting their enhanced Social Security benefits into well-diversified portfolios,” Kojonen said. “For example, one couple delayed their benefits until 70 and redirected this additional income into a mix of index funds and dividend-paying stocks.”
He said this move provided them with an additional layer of financial security and a growing income stream that significantly contributed to their retirement lifestyle quality.
“This strategic approach not only leveraged the guaranteed increase offered by Social Security but also capitalized on market growth,” Kojonen said.
Rodgers agreed, noting that diverting a portion of your savings or other income into a diversified investment portfolio, including stocks, capitalizes on the compounding effect over time.
“Historically, the stock market has yielded an average annual return of around 7-10%,” he explained. “Assuming an individual chooses to delay Social Security, contributing an additional $10,000 annually to a well-managed investment portfolio returning 8% could potentially yield an additional $100,000 or more by the time they reach age 70.”
However, he said, it’s essential to acknowledge that the stock market is subject to fluctuations, and returns aren’t guaranteed.
For this reason, he recommends relying on professional financial advisors who can look at your individual circumstances and come up with a well-rounded, personalized retirement plan and investment strategy.
Optimize Spousal Benefits
“Another strategy I’ve seen work well involves coordinating benefits for married couples,” Brillant said.
He said optimizing the higher earner’s benefits to delay as long as possible while the lower-earning spouse starts benefits earlier helps maximize the couple’s total benefit.
“This can free up some immediate income for investment in tax-advantaged accounts or other vehicles like dividend-paying stocks or bonds, which can provide additional income streams in retirement.”
Consider Tax Implications
“From my experience in tax law, it’s critical to consider the tax implications of your Social Security benefits and investment choices,” Brillant cautioned.
Knowing how and when to incorporate these benefits into your overall retirement strategy is as important as the investments themselves, he said.
“For instance, restructuring your investments to benefit from long-term capital gains tax rates or understanding the thresholds for Social Security benefit taxation can preserve more of your wealth for retirement and investment purposes.”
Start Small but Stay Consistent
“Even as little as $150 to $200 invested per month could turn into over $50,000 cash 20 years later,” Kilday said. “That’s because keeping money invested long term compounds returns and multiplies original savings through the power of interest earning interest.
“The idea is Social Security supplies basic life support, but smart investing of any surplus funds creates major bonus wealth on top to travel more, help grandkids and enjoy hobbies. So view Social Security income as a safety blanket that then gives freedom to pursue more rewards through stocks and funds without worrying about running out of money.
“Investing small bites consistently pays off in a very big way later on, if you have discipline.”
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