6 Ways Retirees Can Build Wealth Using Their Social Security Checks
Transitioning to a fixed income and starting to receive Social Security benefits is a major milestone — and one that can have many repercussions on retirees’ financial well-being.
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Indeed, several experts argue that it can be challenging to live on these benefits alone. For instance, Stephen Kates, CFP, principal financial analyst at RetireGuide, said that these only cover 20% to 40% of most retirees’ income. Yet, contrary to popular belief, experts also note that there are ways for retirees to build wealth using these Social Security checks, though perhaps not for everybody.
“If you are in retirement and you don’t require your Social Security checks to fund your living expenses, there are several things you can do to leverage your benefits to build wealth,” said Steve Sexton, CEO of Sexton Advisory Group.
Here are some ways retirees can build wealth using their Social Security checks.
Invest and Hold
Sexton said a good move is to invest your Social Security check in bonds, stocks, mutual funds or real estate.
“You should be prepared to hold these investments for at least five years to see returns, but as always, understand the potential risks and gains of any investment opportunity before you commit,” he added.
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Diversify and Generate Passive Income Streams
Another tip is that once you are collecting Social Security, don’t assume that because you are of retirement age, you don’t have many years to invest.
“While you may want to put a higher portion of your assets in very safe assets, today’s retirees may still have decades left to live and enjoy life, and so the investment horizon is likely longer than in the past,” said Bobbi Rebell, CFP and personal finance expert at CardRates.com.
In turn, she said, diversification may also make sense. For instance, many retirees enjoy investing in real estate and creating an income stream with tenants.
“While it may lower your profits, you can hire companies to do the day to day management if you want to avoid being tied down,” she said.
Delay Claiming Your Benefits
While this, of course, is not available to every retiree, waiting to claim Social Security benefits until age 70 is the best way to maximize the monthly benefit amount.
“Each year a retiree waits past their full retirement age will increase the benefit by approximately 8%,” said Kates, adding that the breakeven point for waiting on Social Security benefits is roughly age 80.
“If you expect to live past 80 years old, especially in good health, waiting to claim may offer you a significantly larger income benefit,” he added.
Life Insurance Policy
Another option to build wealth is with life insurance, some experts also noted.
For instance, if you’re thinking of how your Social Security checks can help build wealth beyond your lifetime, Sexton said to consider using them to fund a guaranteed premium universal life insurance policy that is the equivalent of the projected value of your IRA, of which your next generation is the beneficiary.
“If you’re in good health at 70 years of age and expect to live well into your golden years, this strategy will allow you to pass along your life insurance death benefits to your beneficiaries tax-free,” he added.
Pay Off Your Debt
Another crucial move to be able to build wealth with these benefits is to pay off any debt, which includes credit card debt, medical debt, personal loan debt and student loan debt — as many retirees still have student loan debt of their own or for a child or grandchild — according to consumer finance expert Kyle Enright, president of lending at Achieve.
“With limited exceptions, it’s hard to build wealth [with] Social Security when carrying debt,” said Enright.
Downsize, Automate Savings and Seek Guidance
Finally, as some experts also noted, building wealth during retirement with Social Security checks requires strategic planning and disciplined execution.
According to Chad Gammon, CFP, owner of Custom Fit Financial, some actionable tips that can help retirees maximize the benefits of their Social Security income include downsizing or moving to a lower-cost area to reduce living expenses.
Another move is to set up automatic savings from your Social Security deposits to a savings or investment account.
“Even small amounts can grow over time through compounding,” he said.
Finally, he recommended working with a financial planner to develop a comprehensive retirement strategy that includes the optimal use of your Social Security income.
“This can help you navigate complex decisions,” added Gammon.
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This article originally appeared on GOBankingRates.com: 6 Ways Retirees Can Build Wealth Using Their Social Security Checks
