How a 401(k) Helps Your Social Security Benefits Go Further

Quick Read

• Social Security benefits vary depending on the age you claim them.

• Many people want to claim Social Security benefits later in life so they can max out their benefits.

• If you have money in a 401(k), you are better positioned to maximize your Social Security because you have more flexibility.

• A recent study identified one single habit that doubled Americans’ retirement savings and moved retirement from dream, to reality. Read more here.

Maximizing your Social Security benefits is one of the smartest moves you can make due to some special features these benefits offer.

Specifically, your benefits have automatic inflation adjustments built into them. This means you don’t have to worry as much about your money losing ground over time. For most people, Social Security is also the only source of income guaranteed to last for life.

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The good news is that if you have a 401(k), this account can help you to make your Social Security benefits go further. Here’s how having a retirement savings account allows you to make the most of your Social Security checks.

How a 401(k) can help you boost your retirement benefits

Having money in a 401(k) can make a huge difference in your ability to boost your Social Security checks for one key reason. The 401(k) funds give you the flexibility to claim Social Security when you want to, not when you have to.

See, the longer you can delay your claim for Social Security benefits, the larger your benefits become. You have a full retirement age (FRA), which is 67 if you were born in 1960 or later. However, you can claim your benefits as early as 62. Each month you claim early reduces your checks, though. You’ll reduce your benefit by 5/9 of 1% for each of the first 36 months you claim ahead of FRA and by 5/12 of 1% for each additional month before then.  That adds up to a 30% benefit cut if you claim at 62 when your FRA is 67.

Many people intend to wait to claim Social Security benefits so they can avoid this hit. And, in fact, it’s common to want to wait even longer — until age 70 — since you earn delayed retirement credits for each month you wait to start benefits after hitting your FRA.  Each month you delay your claim will increase benefits by 2/3 of 1%,  so you can increase your payment amount by 8% for each year you wait.

Unfortunately, being able to continue working until 70 often isn’t possible. You may develop health issues that prevent you from holding a job, or you may not be able to find a job in your field as you age. You may also need to quit work to take care of family, or simply because you’re tired of working as you get older.

If you must stop working early, you could be forced into claiming  Social Security before you’re ready. This doesn’t have to happen to you if you have a 401(k), though. You can start withdrawals penalty-free from your 401(k) starting at age 59 1/2 (or even as young as 55 in certain circumstances). If you have enough money invested in your retirement plan, you can choose to live on just your 401(k) distributions for a while as you allow your Social Security benefits to grow so you can make the most of them.

Invest in your 401(k) throughout your working life

Investing in your 401(k) gives you freedom and financial security, both by allowing you to delay Social Security if you want to, and by ensuring that you have enough money to supplement Social Security throughout your retirement. You’ll also be able to take advantage of valuable tax breaks for 401(k) contributions, and your employer may offer matching funds to help your account grow.

You should be investing in this account throughout your working life. If you aren’t sure how to get started, how much to invest, or what to invest in, a financial advisor can help. Get the support you need to begin investing ASAP so your money can grow, and you can make the most of all of your retirement funds.

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