3 Ways An IRA Is A Perfect Addition To Social Security

Individual retirement plans, more commonly known as IRAs, are powerful tax-efficient retirement savings tools that most of us should make the most of. Together with the income from social security, they can be essential supports in our last decades.

Here’s an overview of what Traditional and Roth IRAs are and three ways they can be perfect additions to your Social Security income.

HOW TO BOOST YOUR RETIREMENT WHEN SOCIAL SECURITY COVERS ONLY 40%

Traditional and Roth IRAs

Traditional and Roth IRAs both offer great tax savings, but the tax breaks are different. The traditional IRA accepts contributions on a pre-tax basis: you get to reduce your taxable income by the amount of your contribution, which reduces your tax bill for the year of the contribution. There are taxes, however: when you withdraw money from the account later, usually in retirement, it will be taxable income.

While the traditional IRA offers an initial tax break, the Roth IRA offers a back-end. Contributions don’t reduce your taxes for the contributory year, but the money in the account – and whatever else it can reach – can be withdrawn in retirement tax-free.

For 2020 and 2021, you can contribute up to $ 6,000 per year to all of your combined IRAs, plus an additional $ 1,000 if you’re 50 or older.

3 SURPRISING FALLS FROM WORK DURING RETIREMENT

1. It can close your income gap

The first way that an IRA can supplement your Social Security income is simply this: Social Security income alone will likely only provide a fraction of the retirement income you need or want. Recently, the average monthly retirement benefit was only $ 1,547, or about $ 18,500 per year. If you earn an above average salary, you will receive more, but it’s still not a huge amount. So adding it through IRA savings can be a critical decision.

Note that contribution limits will increase over time and you will exceed the 50-year threshold at some point, so it is very possible that you can accumulate a lot more.

GET FOX BUSINESS ON THE ROAD BY CLICKING HERE

2. It can help you retire earlier

Social Security is a vital support for most of us – indeed, it provides about a third of the income of the elderly, and 21% of married elderly people on Social Security and 44% of singles receive 90% or more. more of their income from that. But the earliest age you can start collecting it is 62 (and the last is 70).

If you want to retire at, say, 60, you’ll have to do so without Social Security earnings, at least for a while. Enter your IRA – you can start collecting IRAs as early as 59 1/2. (You can actually start earlier, but that’s not recommended, as you’ll face an early withdrawal penalty.) So having a plump IRA to draw income from can help you retire earlier, though. you’re lucky enough (or if you’re disciplined enough in your savings and investments) to be able to afford it.

CLICK HERE TO LEARN MORE ABOUT FOX BUSINESS

3. It can help you wait and get bigger Social Security checks

Here’s another way an IRA can help you with your Social Security: It can be part of an income maximization strategy. Understand that you can increase or decrease your Social Security checks by starting to collect later or earlier than your “full retirement age” – the age at which you can start receiving the full benefits to which you are entitled. based on your employment history. (That age is 66 or 67 for most of us.)

If you have a decent chance of living a longer than average life, it will be worth delaying the start of Social Security collection for as long as you can – ideally up to age 70. Income from an IRA can help you get by until your Social Security checks start flowing. (Another reason to delay collecting Social Security, if you’re married and earning the most money, is to make your checks as big as possible when you or your spouse is widowed – and can claim the highest of your two benefit checks.)

It is worth reading up on retirement strategies and how to save and invest effectively for your future. A few hours spent learning more could earn you several thousand dollars more in your golden years.