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There’s a lot of advice out there about when to start taking Social Security benefits so you can get the most out of the program. But no one ever talks about what you should do with the money once you’re receiving your monthly checks. Most people need to use their benefits to help them cover their living expenses, but investing them is another option. Below, we’ll look at how to determine whether that strategy is a good fit for you.

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How investing your Social Security benefit could help you

If you don’t need your Social Security benefits to live on, you could invest them to provide you with even more money later on in retirement or leave a nice inheritance to your heirs.

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If you are entitled to a typical 62-year-old retired worker’s Social Security benefit of around $1,200 per month starting at 62, and you take those payments and invest them all for 10 years, you’d end up with nearly $207,000 if you earned a 7% average annual rate of return. Of that amount, only about $144,000 would be your Social Security benefits — the remaining $63,000 would come from your investment earnings. That alone could fund a year or two of retirement for a lot of people.

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Is investing your Social Security benefit right for you?

You should not invest your Social Security benefit in stocks unless you’re pretty confident that you won’t have to sell those investments for at least five years or so. The stock market is volatile in the short term, but over the long term, it tends to generate strong returns. Holding your securities for longer makes it more likely you’ll come out ahead, assuming you’ve chosen your investments wisely.

Leaving your money invested for a longer period of time will also help you save on taxes. Unless you’re still working, you won’t be able to invest your Social Security benefits in a retirement account, so you’ll have to use a taxable brokerage account. If you hold a stock position in this type of account for less than one year, you’ll pay short-term capital gains tax on any profits you accrue when you sell it. In essence, those profits will be taxed at the same rates as your ordinary income. But once you hold an investment for longer than one year, it becomes subject to the more favorable long-term capital gains tax instead. This enables you as an investor to hold onto more of your profits. In fact, depending on your annual income in the year you sell, you may not owe any taxes on those investment earnings at all.

But this strategy isn’t going to work for you unless you can afford to live for several years without the money you are setting aside and investing. If you don’t think that will be possible, you should try an alternate strategy.

Another way to increase your Social Security checks

If you’re not comfortable investing your Social Security benefits, you could grow your checks by delaying them instead. Every month past your 62nd birthday that you delay taking your benefits will shrink the percentage reduction in your monthly checks by anywhere from 5/12 of 1% to 5/9 of 1% per month until full retirement age. Wait longer, and you’ll add another 2/3 of 1% per month until you reach your maximum benefit at 70.

There’s no risk of loss with this strategy, but it does carry some of the same limitations as investing your benefit, including the fact that you’ll have to live without Social Security for some time. But you could delay benefits for a few months or a few years, then sign up whenever it’s convenient, or when you truly need those funds to cover your expenses. 

Investing your Social Security benefits definitely has the potential to grow their value more quickly than delaying taking them, but if you’re worried about the risk of investment losses, postponing the day you apply for benefits is probably the safer bet. Weigh all the options and decide which strategy makes the most sense for you right now. You can always change your mind if your circumstances change later.

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