When it comes time to retire, chances are good you'll rely on Social Security to help you cover your costs. But you can't expect to rely on these benefits too much, or you'll be in financial trouble.
That's because your retirement checks are intended only to replace about 40% of pre-retirement income. That's a huge pay cut if you don't have plenty of savings to supplement your benefits.
Unfortunately, many people don't realize just how little Social Security income they'll have coming in and they end up disappointed once they reach retirement. If this happens to you, you have a few options to salvage the situation.
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Work longer
Working a little bit longer is one option that could help you increase your Social Security benefit -- but only if you have a short work history or if you're earning more now than you did in the past.
See, your monthly retirement check is based on average wages in the 35 years you earned the most. If you have fewer than 35 years under your belt, years of $0 wages will bring down the average used to calculate benefits.
Even if you have 35 years in, there's a good chance you're earning more later in your career than you did at some point early on. If that's the case, putting in some extra time could give you some higher earning years to replace lower earning ones when your average wage is calculated.
The more years you can get on the books at a bigger salary, the higher your average wage, and thus the higher the monthly income Social Security can offer. It may be worth staying at your career for at least a few more years to bring up the benefits you'll get for life.
As a bonus, you can add some extra money to your 401(k) or other retirement plans while you're still on the job to boost your savings so it can better supplement Social Security.
Wait to claim your benefits
There's also another option to increase your Social Security checks. You can wait to claim them.
You are eligible to start getting retirement payments at age 62, but this is an early claim. You have a Full Retirement Age, which is based on your birth year, when you can claim your standard benefit and not be subject to early claiming penalties. Or you can wait past your FRA until 70 to increase your retirement benefit payments with delayed retirement credits.
The increase to your benefits by waiting can be substantial.
- If you have an FRA of 67 and you claim your payments at 62, you'd face a 30% reduction in benefits. That would bring a $1,500 benefit down to $1,050.
- If you instead delayed until 70, you'd see a 24% increase to your standard benefit, leaving you with $1,860 a month. That's a lot more income than if you'd filed as soon as you became eligible.
Delaying a benefits claim not only boosts your monthly benefit but it maximizes the chances you'll earn the most money over your lifetime.
Many people live longer now than they did when Social Security was created so the odds are that a delayed claim will end up paying off and providing more lifetime benefits. Plus, if you delay your claim and you were the higher earner, your surviving spouse will get bigger survivor benefits as well.
Putting off a claim is easier if you work longer, so you could combine step one and two to hopefully get a big increase in your Social Security payments.
Look to lower your cost of living
Unfortunately, there may be times when you simply can't increase your benefit at all or when you can't increase it enough to give you the security you deserve.
If that happens and you know you'll fall short, you need to look into lowering the cost of living. And you should do that before you end up spending too much of your savings.
Downsizing your home is one option depending where you live, or you can relocate to a less expensive area if possible. You can also give up one car if you're a two-car home, or look for other ways to economize such as clipping coupons to keep your food budget down.
The reality is, many people do end up disappointed with Social Security. The best way to ensure this doesn't happen to you is to be realistic early on about what benefits will do for you. If it's already too late for that, acting fast to try to shore up your benefits and cut your income could be the best way forward for a secure retirement.
