Many seniors end up relying heavily on Social Security to cover their costs of living once the workforce is left behind. This extends to those who manage to retire with a large portion of the savings.
For this reason, it’s a good idea to get as much money out of Social Security as possible. And the simple act of working an extra year can help you increase your monthly benefits dramatically.
The positive side of working for a longer year
Many people reach a specific retirement age and decide to stick with it. Thus if you decide to retire, say, at age 67, which may be your full retirement age (FRA) for Social Security purposes, the idea of having to work until age 68 may not quite suit you. But if you want a higher monthly Social Security benefit for life, putting in those extra 12 months can make all the difference.
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The longer you wait to claim Social Security, the more benefits you’ll get — up to a certain point, which is age 70. But delaying your filing for one year after a FRA, for example, will give your benefits an 8% boost. Working an additional year can make it possible to defer registration until you can delay this increase.
Meanwhile, if you’re looking to claim benefits before an FRA, you should know that registering early will result in a lifetime decline. So, let’s say your FRA is 67, but you’re looking to retire at age 66. If you push yourself to work an extra year and defer your Social Security claim, your benefits will increase by 6.67% by virtue of not facing that reduction.
But that’s not the only way an extra year in the workforce may increase your benefits. The monthly benefit you get from Social Security is calculated based on the 35 highest paid years. But if you are able to replace a year of lower wages with higher wages, you will have a higher advantage in the process.
So, if you’re 67 and they’re all ready to retire, you’re just now making more money than you did before, and if you work an extra 12 months, you’ll replace a year of lower earnings with higher earnings, thus raising your stake.
It pays to pay yourself
At some point, you can and should decide that you have invested your time in the workforce and that you are officially done holding a job. But if you have any financial concerns about retirement, it’s worth considering the upside to delaying this historic milestone by one year.
In addition to having a higher Social Security benefit, working a year longer will make it possible to leave your savings unchanged for an additional 12 months. You may also be able to add to your IRA or 401(k) plan, which gives you an extra cushion that can be very useful once you are officially out of business.
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