Can You Live on Social Security in Retirement?

If you plan to retire before you’re 70 years old, you could be locking in a 25% reduced rate of pay for the rest of your retirement years. Average payment for folks who were born before 1955 who retire at age 62 ends up to be around $750 per month. If this same person retires at age 66, the rate of pay increases to $1,000 per month. Individuals who wait until the age of 70 fare even better with a rate of $1,320 per month. However, even these rates are a pauper’s wages when it comes to living a rich and fulfilling life during your retirement years. There are other options that offer better returns.

An IRA is a self-run tax-deferred retirement plan that allows you to deduct all or part of your contributions from your pretax income. IRAs are similar to a 401(k), which allows you to make penalty-free withdrawals as soon as you reach 59 ½. You can easily Open an traditional IRA today through an online investing site like Optionshouse.

A Roth IRA isn’t as popular as standard IRAs because this type of IRA doesn’t permit tax deductions at the time of contribution. However, your contributions can be made after age 70 ½, unlike traditional IRAs. With these IRAs, you don’t have to take distributions during your lifetime, and your heirs can benefit from the proceeds without paying taxes.

A company usually sponsors these plans, and many companies match employee funding. Penalties for early withdrawals are at 10%, and you will have to pay income taxes on any funds that you take out before you reach age 59 ½.

It has become advantageous for many retirees to use the funding available in Traditional IRA and 401(k) and 403(b) accounts for making use of Social Security retirement benefits. After all, Social Security lasts for your entire lifetime and adjusts for inflation while traditional pensions don’t. Delaying reliance on Social Security can lead to increased lifetime payments, which makes sense for the financial long-term.