A Smart Strategy for Claiming Social Security At 62

SOURCE: FLICKR USER PUG50

Nearly half of all Americans claim their Social Security benefits as early as possible and most claim Social Security by their full retirement age. Given so many Americans are opting to receive benefits sooner, rather than later, let's consider how a Roth IRA strategy may help this money last longer in retirement.

Put Social Security to workSocial Security allows recipients to work and collect Social Security payments and workers who are younger than full retirement age, or the age at which they can receive 100% of their benefit, can earn up to $15,720 without it reducing the size of their monthly Social Security check.

As a result, supplementing your Social Security benefits with part-time work and then investing as much of your Social Security income as you can in a Roth IRA may make a tremendous amount of sense.

According to a TransAmerica study, that's exactly what many Americans may be planning to do.

51% of workers who participated in their 16th annual retirement survey revealed that they plan to continue working in retirement and another 24% may consider it. That means that 75% of American workers may generate enough earned income to allow them to invest their Social Security check into a Roth IRA.

Unlike a traditional IRA, Roth IRAs don't require minimum distributions, so a retiree can contribute to them as long as they live and earn income from working. Because Roth IRA contributions are made with after-tax money that can grow tax-free, making use of a Roth IRA in retirement can significantly increase the size of your estate and improve your financial security.

For example, let's say Mary takes Social Security at age 62 and that she receives $700 per month in benefits, or $8,400 per year. Mary also earns $6,500 per year in after-tax income by working part-time. Because Americans over the age of 50 can contribute up to $6,500 to a Roth IRA every year, Mary sets aside that amount from her Social Security income every year until she stops working at age 75. If Mary earns a hypothetical 6% per year, then she will have increased the size of her estate by an additional $122,584.

Mary could stash away even more if she collects retirement income from other sources, such as a pension, and therefore, is able to max out her Roth IRA contribution and contribute the rest of her Social Security income to a taxable investment account. If she invests her $8,400 in Social Security income over that same period of time and earns a hypothetical 6% return every year, then she will accumulate an additional $150,000 in savings by her mid 70s.

Looking forwardDeciding when to claim Social Security is a personal decision that will depend a great deal on your own situation, but if you've decided to claim Social Security at age 62 and are willing to work at least enough to qualify for maxing out your Roth IRA, the benefits could be great.

The article A Smart Strategy for Claiming Social Security At 62 originally appeared on Fool.com.

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