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.
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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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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.
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.
