How seniors can enhance Social Security benefits and retirement savings

For many Americans, Social Security is the main source of retirement income and support as they get older. But as people live longer and living costs go up, relying only on Social Security might not be enough to keep the lifestyle retirees wantw.

In 2023, a report from the SSA showed that the average monthly benefit was about $1,710. However, monthly costs for things like housing and healthcare often go beyond this, creating a challenge for retirees.

Wayne Park, the CEO of John Hancock Retirement, discusses the role of the industry in preparing individuals for a robust financial retirement. He emphasizes that while Social Security serves as an important foundation, there’s a need for additional support to ensure sufficient retirement savings and financial independence.

Park highlights that Americans are experiencing longer life spans, but this doesn’t necessarily correlate with extended working years. This scenario implies that many retirees might cease working earlier but continue to live many years beyond retirement.

To get the most out of Social Security benefits, you need to think about timing, plan for the long-term, and find extra sources of income. If you’re planning for retirement, it’s important to look at these factors to make sure your Social Security income helps create a strong financial future.

Key strategies to maximize social security benefits

Social Security choices can be confusing. Still, there are smart ways to maximize your benefits and ensure a steadier income when you retire. Here’s how you can make the most of Social Security:

Extending Work Duration to Secure a Full Earnings Record: The Social Security Administration figures out your benefits based on your top 35 earning years. If you have fewer than 35 years of earnings, the missing years count as zero, which lowers your benefit. By working extra years, you can replace those low or zero-earning years with higher-earning ones, boosting your monthly benefits. For example, returning to work after a break can increase your Social Security benefits by swapping out those low-earning years for higher recent earnings.

Claiming at Full Retirement Age: You can start getting Social Security benefits at 62, but this will reduce your benefit amount because you haven’t reached your full retirement age, depending on your birth year. If you claim at 62, your monthly benefits could drop by up to 30%, meaning you’ll receive less money each month. By waiting until your FRA, you ensure you get the full benefits based on what you’ve earned over your lifetime.

Delaying Benefits to Age 70 for Maximum Growth: If you wait to start getting Social Security until after your full retirement age, your monthly benefits will go up because of Delayed Retirement Credits. This increase happens each year you delay, until you reach age 70, and can add about 8% more per year. For healthy retirees with other income sources, waiting can be a smart way to get more from Social Security and boost your financial security.

Exploring Spousal Benefits: If you’re married, you can claim spousal benefits, which could be up to 50% of your spouse’s benefit. This is especially helpful if one spouse didn’t earn as much. However, the rules can change depending on when you were born and your work history. It’s a good idea to talk to a financial advisor to see how this might affect your overall retirement income.

Staying Informed on Cost-of-Living Adjustments: Each year, Social Security benefits are adjusted to help keep up with inflation, which saves your buying power as things get more expensive. But sometimes, these adjustments might not fully match the real cost of living, especially in pricey areas. Keeping track of these changes is important so you can manage your money wisely.

Expanding retirement savings

Park highlights five key areas where the retirement industry and employers can help people get ready for retirement. He suggests improving access to tax-advantaged savings plans, using automatic enrollment, promoting participation, supporting solid investment strategies, and offering personalized advice to all workers.

Expanding Access to Savings Plans: Making it easier for people to use tax-friendly savings plans like 401(k) or IRA accounts is a focus for Park. Thanks to policies like the SECURE 2.0 Act, which encourages employers to offer retirement plans, more Americans can build their retirement savings. It’s important that everyone has access to these plans because they offer tax benefits and employer contributions that can significantly boost savings over time.

Automatic Enrollment and Escalation: Automatically signing up employees for retirement plans and slowly raising their contributions are great methods to boost retirement savings. Research from John Hancock Retirement shows that these techniques not only get more people involved but also lead to increased savings overall. By setting up automatic contributions, employers can encourage a savings mindset and help workers create a more secure financial future.

Boosting Engagement and Proactive Financial Management: Getting involved with your retirement plan is important. Employees who pay attention to their retirement plans tend to save better. Learning about finances and getting personalized advice help employees understand their choices and take charge of their future funds.

Tailored Investment Strategies: Choosing the right investments can make your retirement savings more effective. By offering different investment choices, retirement plans can match your risk level and future goals. This lets you manage your savings according to your retirement plans. Park highlights the need to offer both high-growth and safe investment options, based on how close you are to retirement.

Securing retirement with strong financial foundation

Getting ready for retirement means more than just relying on Social Security. Even though Social Security gives you steady income, it’s essential to have other savings and income sources to enjoy a comfortable retirement. Here are some more strategies to consider:

Diversifying Retirement Savings: Retirement savings accounts, like 401(k)s and IRAs, come with tax benefits and can add to your Social Security benefits. Make sure you take full advantage of employer matching contributions, as they are like “free money” that boosts your retirement savings. By regularly putting money into these accounts and making smart investments, you can build a stronger financial cushion.

Effective Withdrawal and Spending Strategies: To make your retirement savings last, aim for a safe withdrawal rate. Many experts suggest taking out no more than 4% of your savings each year to avoid running out of money too soon. Make a clear budget for important costs like housing and healthcare. This way, you can focus on what you need to spend and adjust withdrawals if things change.

Reducing Fixed Costs and Relocating if Necessary: Housing and healthcare are big costs during retirement. Moving to a smaller home or a cheaper area can help you save money. By cutting down on housing costs, you can have more money for healthcare or unexpected expenses.

Emergency Funds and Long-Term Care Insurance: Creating an emergency fund is essential. It helps you cover surprise expenses without dipping into your retirement savings. Also, having long-term care insurance can protect you from the high costs of ongoing medical or personal care, so these costs don’t drain your finances.

Conclusion

According to Wayne Park and other experts, retirement planning isn’t just about saving money. It’s about actively planning, using available resources, and getting advice tailored to your needs. By using Social Security wisely, taking advantage of employer retirement plans, and saving regularly, you can build a strong financial future for a stable and rewarding retirement.