Most people depend on a balance of social security, investments in retirement accounts and even part-time work to finance the "Golden Years." It's natural to worry that having a large amount of money in your 401K or IRAs might somehow decrease the amount of money that you'd receive from social security, but there's nothing to worry about. Social security payments are based on how much you worked and earned, not how much money you saved.
Your Retirement Savings
You may have a couple of different retirement savings accounts to draw from aside from Social Security. These may include both traditional and Roth IRAs, a 401K or 403B and even a simple personal investment account. Each of these accounts are taxed differently. In a Roth IRA and a personal investment account, you fund the account with dollars on which you have already paid taxes, so you will only have to pay taxes on the interest that has accrued. The traditional IRA and the 401K or 403B were funded with pre-tax dollars, so you'll have to pay taxes on the full amount.
What Affects Social Security Payments
The biggest thing that affects the amount that you'll get from social security is the amount that you earned while working. To calculate, the government uses the 35 years in which you earned the highest amount. The amount you receive can be increased or decreased based on when you start receiving payments. If you start earlier than 62, you'll receive less money. However, if you continue to work past that age, the amount that you'll earn will increase slightly until it caps out at age 70.
Estimating You Social Security Payments
You should receive an annual statement from the Social Security Administration detailing approximately how much money you should receive based on how much you've been earning. You can also use the benefit calculator at Social Security Online (ssa.gov). For a rough estimate, 401K Focus suggests that you can estimate the amount that you earn to be about 40 percent of your current wage.
The Right Mix
The key to a successful retirement is budgeting your money properly. You're likely to be taxed on the money you withdraw from your retirement savings accounts, so it's best to take out as little as possible. When budgeting your money, plan to spend the full amount that you receive from social security first, then cover the rest of your costs with money from your investments.
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