You'll often hear that saving for retirement is important and you shouldn't expect Social Security to cover all your senior living costs. But sometimes, saving for retirement can be easier said than done.
If you earn an average income, you may find that your paychecks are monopolized by unavoidable costs like housing, food, utilities, and the like. And if you have children, you may be inclined to put their needs ahead of yours and divert your extra funds to their college educations over your IRA or 401(k) plan.
Either way, if you're now nearing retirement and haven't amassed much of a nest egg, you may end up being heavily reliant on Social Security, whether you wanted that to be the case or not. But actually, if you file strategically, those benefits could help make up for a retirement-savings shortfall.
Image source: Getty Images.
Snag extra money from Social Security
Some people don't get the option to delay retirement and work a bit longer than initially planned. But if that choice exists for you, then it pays to do so for one big reason -- it could make it possible to delay your Social Security filing. And that alone could boost your income substantially throughout your senior years.
You're entitled to your full monthly Social Security benefit, which is calculated based on your personal wage history, once you reach full retirement age, or FRA, which hinges on your year of birth. If you were born in 1960 or later, it's 67. Otherwise, it's either 66 or 66 and a specific number of months.
For each month you delay your Social Security filing past FRA, your benefit will grow by 2/3 of 1%. That amounts to an 8% boost to your benefits for every year you hold off on filing.
Once you turn 70, you can no longer get credit for delaying your filing. But if you wait that long, you could snag a boost to those benefits of 24% or more. And that could really go a long way toward compensating for a lower retirement-savings balance than you wanted.
Imagine you're entitled to $1,600 a month in Social Security at an FRA of 67. If you wait three full years to file, that monthly payday will increase to $1,984. That's an extra $384 per month, or $4,608 per year.
Plus, as an added bonus, if you work a bit longer to make it possible to delay your Social Security filing, you may also get an opportunity to add a little money to your nest egg. Just as importantly, you'll avoid tapping your savings a few extra years to stretch that money further.
A good way to compensate
In an ideal world, you'd be entering retirement with a healthy amount of money socked away in your IRA or 401(k). But if it's a bit too late for that, your next best bet may be to squeeze as much money as you can out of Social Security. Doing so could spell the difference between struggling financially as a senior or managing reasonably well.
