How Social Security Can Help In Funding Your Retirement
As we work, the government mandates all employers and employees pay a contribution to their Social Security. Our Social Security serves as our primary retirement account and pension plan the moment we retire.
However, most people undermine the potentials of Social Security, leading them to only contribute minimum payments and focus on other investment schemes. This is mostly true especially to entrepreneurs according to the financial experts.
Most entrepreneurs treat their Social Security as their secondary source of retirement income. But what you didn’t know is you’re making a big financial mistake. The financial experts reveal the power of social security and how it can benefit you if you plan your finances properly.
Planning Your Contributions
According to renowned entrepreneur Mark J. Kohler, your Social Security benefits play a vital role not only in funding your retirement but also your businesses. So it’s important you understand how Social Security benefits work to strategize your financial contributions properly.
Today, a married couple with whom both partners are working and paying premium contributions can receive between $800,000-$1,000,000 Social Security benefits paid to them throughout their retirement years.
Meanwhile, an average-income married couple may only receive a $4,000 pension per month, or around $48,000 a year if they don’t do anything about it. To retire comfortably like the prior couple, you need to accumulate a nest egg of nearly $1,600,000 at 3% per annum to let your money grow and adjust for inflation according to Kohler.
He shares the key strategy in planning your contributions are to adjust your Social Security wages to the lowest level. This, in turn, enables you to maximize your benefits in the future.
The S Corporation Strategy
Kohler explains an entrepreneur who’s managing an operational business may have to pay their Social Security either through K-1 as an LLC or self-Employment Tax paid on Schedule C. The problem with these schemes is that you cannot control how you pay your taxes nor how much you should contribute for your Social Security. Kohler advises entrepreneurs can solve this problem by establishing an S corporation.
Having an S Corporation gives the entrepreneurs the control to determine how they want to pay their taxes and how much should they pay. It’s also an excellent strategy to plan for your Social Security benefits while saving on FICA taxes.
Kohler’s advises you check Your Annual Social Security Benefits Statements to determine the total FICA taxes you paid every year. This can also help you calculate the optimal salary level to avail of the maximum benefit amount you can get when you retire.
Kohler also advises not to take this payroll planning poorly and lightly as it can help you save thousands of dollars in taxes annually and put it instead in your Social Security benefits in the long run.
On Claiming Your Benefits
Now that you’ve finally entered the golden retirement years, you might be tempted to file your claim during the first year of your retirement. Kohler advises you refrain from doing so yet. You can use the following guidelines to maximize your Social Security benefits after you retire.
Delay Your Benefits Claim
As much as possible, Kohler advises you wait until your Full Retirement Age to receive 100% of your benefits without reduced payments or taxes. Aside from that, you can also enjoy receiving increased pension payments thanks to the power of compounding interest. Lastly, you can have part-time jobs or an unlimited source of income since Social Security won’t deduct your pension payments any longer.
Delay Your Spouse’s Benefits Too
Delaying on claiming your benefits not only create a bigger payout for your pension payments but also your spouse too. Your payout can be passed down to your partner’s benefits as well. So if your spouse is younger or if he or she has lesser pay than you, it’s crucial to delay claiming their benefits to make use of the compounding growth to let your spouse’s money grow too.
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