When you're starting out in the working world or are in the prime of your career, it may be hard to imagine that decisions you're making now could profoundly impact future Social Security benefits.
The reality, however, is that actions you take throughout your working life can add tens of thousands of dollars to the income your retirement checks provide. Here are two surprising steps you can take right now that could leave you with much more financial security during your later years.
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1. Negotiate your salary each year
Glassdoor research revealed that 59% of Americans didn't negotiate salary when first offered their jobs. And PayScale data found that 57% of U.S. workers had never asked for a raise.
A failure to negotiate can cost employees more than a million dollars in potential lost earnings throughout their lifetimes.
It also has dire consequences for Social Security. Benefits are based on average wages over each worker's 35 highest-earning years. Employees who end up earning much less than they could've if they negotiated will end up with much lower retirement benefits because of it.
The good news is, negotiating for higher earnings doesn't have to be difficult. You can bolster your case for better pay by researching what others in your field are earning and coming prepared with a list of recent accomplishments.
2. Switch to a Roth IRA
Workers have a choice of retirement accounts to invest in, and surprisingly this decision can affect the amount of future Social Security benefits you get.
Benefits aren't taxable if you have provisional income below a certain threshold -- $25,000 for single filers and $32,000 for married joint filers. Provisional income is calculated by adding up all taxable income, some non-taxable income such as MUNI bond interest, and half of Social Security benefits.
If your retirement income comes from Social Security and a 401(k) or traditional IRA, there's a good chance you'll lose part of your benefits to taxes because 401(k) or IRA distributions count in your provisional income calculation.
The thresholds at which taxes apply don't change each year, so over time, more and more workers will have an income in the range where their benefits are taxed. Chances are good you'll be one of them if you aren't retiring for a while, and the thresholds remain where they are even as wage growth results in most people having higher taxable income.
But if you invest in a Roth IRA or Roth 401(k), any distributions from it won't be part of provisional income. As a result, you can likely keep your earnings below the threshold where taxes are taken out since your provisional income will simply equal half your Social Security benefits.
Avoiding taxes on your checks means more of your Social Security money is yours to keep, so you'll have more support in your later years. By both boosting your salary and opting for Roth accounts, you should end up with a lot more money from the Social Security Administration -- and a lot more financial security as a retiree.
