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Social Security is One Stepping Stone in Your Wealth-Building Journey

Updated: 3 days ago



Social Security often gets a bad rap.  It is associated with retirement and many people don’t believe that it will be around for them later in life.  Although the current financial state of Social Security has its challenges, the U.S. government knows that this is an important financial safety net for many.  As a result, expect Social Security to be around and it can play an important role in your wealth-building journey.


Welcome to the world of investing! As an investor, you should be exploring various avenues to build your wealth. Stocks, bonds, real estate, mutual funds, side hustles, and small businesses might be on your radar, but there’s one often-overlooked asset that can play a crucial role in your financial wellbeing: Social Security.


Understanding Social Security

Social Security is not just a retirement benefit; it’s a comprehensive program that also offers disability, survivors, as well as retirement benefits. It’s funded through payroll taxes collected under the Federal Insurance Contributions Act (FICA) or the Self-Employment Contributions Act (SECA).


The Role of Social Security in Wealth Building

While Social Security is designed to replace only a portion of your pre-retirement income, it can be a critical component of your long-term wealth-building strategy. Here’s how:


1. It’s a Foundation of Guaranteed Income

Social Security provides a base level of income that is adjusted for inflation, known as Cost-of-Living Adjustments (COLAs), ensuring that your purchasing power is maintained throughout retirement.


2. It Provides Longevity Insurance

As life expectancies increase, outliving your savings is a significant risk. Social Security acts as longevity insurance, providing you with a monthly income for life.


3. It Provides Investment Diversification

Your investment portfolio likely contains a mix of stocks and bonds. Social Security adds another layer of diversification, as it’s not directly correlated with financial market performance.


4. It Provides Less Risk than Other Investments

Because Social Security is a source of guaranteed income, you can always depend on your Social Security benefits, even during market downturns.


Maximizing Your Social Security Benefits

There are strategies you can take to help you get the most out of Social Security, consider these tips:


  • Delay Benefits: You can claim Social Security as early as age 62 but delaying benefits until your full retirement age or even age 70 can significantly increase your monthly payment.

  • Work at Least 35 Years: Your benefit is calculated based on your 35 highest-earning years. Working less than 35 years means zero-income years will be factored into the calculation, reducing your benefit.  You want to avoid this as much as possible.

  • Understand Spousal Benefits: If you’re married, you may be eligible for benefits based on your spouse’s work record, which can be a great option especially if one spouse has a lower earnings history than the other.


Conclusion

Social Security should not be the sole focus of your wealth-building journey, but rather a piece of the puzzle. By understanding and maximizing your Social Security benefits, you can create a stronger and more secure financial future.

Remember, the key to successful wealth building is a well-rounded approach that includes saving, investing, and making informed decisions about assets like Social Security.


I hope you now have a clearer and informative perspective about the role of Social Security as part of your wealth-building. If you need further information about the benefits from Social Security, please reach out to Paycheck to Wealth to learn more!

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