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Here's How Social Security Can Make Up for Missing Savings

By Maurie Backman – Jan 15, 2022 at 1:18AM

Key Points

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If your IRA or 401(k) isn't all that strong, one key move could make it possible for Social Security to come to the rescue.

If saving for retirement were an easier thing, more people would no doubt do it. But for people on a limited income, it can be tough.

Even if you're a higher earner, you may find that your bills monopolize too much of your income to make decent headway in building a nest egg. And so you may be in the position, like many, where you're approaching retirement with little money saved in an IRA or 401(k) plan.

If that's your situation, don't panic. It doesn't necessarily mean that your retirement is doomed.

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Image source: Getty Images.

For one thing, you may have the option to work part-time in retirement, whether by taking on a new job or consulting in your former field, and that could serve as a nice income boost. You may also have the option to downsize your living space or rent out part of your home for income.

But those aren't your only choices. If you claim Social Security strategically, you can compensate for missing savings -- and set yourself up with a higher monthly income for life.

A higher benefit could be yours with one simple move

You're entitled to your full Social Security benefit based on your wage history once you reach full retirement age, or FRA. FRA hinges on your year of birth and is either 66, 67, or somewhere in between.

But you're not forced to sign up for Social Security upon reaching FRA. In fact, for each year you hold off on filing, up until age 70, you'll be rewarded with an 8% boost to your benefits. And that boost will then remain in effect for the rest of your life.

So, say you're looking at a monthly benefit of $1,800 at a FRA of 67 based on your earnings history. If you work an extra three years and delay your claim until age 70, you'll raise your benefit to $2,232. And that extra $432 a month could easily make up for a lower IRA or 401(k) balance.

Do your best to save

While delaying your Social Security filing until age 70 can help compensate for a lower savings balance than you'd like, you shouldn't plan to neglect your nest egg and postpone your filing. Rather, you should do your best to sock funds away for retirement and limit your spending to make that possible.

That may mean starting out by contributing $50 or $75 a month to your retirement plan and doing your best to ramp up your savings rate over time. Or, it may mean putting bonus cash you get into your savings, whether it's a cash reward from your job or a tax refund, if you run into a period when you can't spare any money from your paychecks.

But if you're nearing retirement and it's too late to go back in time and pump money into your IRA or 401(k), then delaying your Social Security claim is a good fallback option. By boosting that income stream for life, you could set yourself up for fewer worries in the face of limited savings.

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