Planning for retirement without knowing what the future of Social Security might look like in five, 20 or 50 years is no easy feat. But how is the average American grappling with this uncertainty?
To find out, GOBankingRates surveyed over 900 Americans about their confidence in Social Security and how much of their retirement they are planning to finance with the government program. Keep reading to discover how Americans really feel about Social Security, plus the best ways to create a retirement plan sans this government-issued insurance program.
23% of Americans Are Not Counting on Social Security To Fund Their Retirement
When it comes to using Social Security to fund retirement, nearly one-quarter (23%) of Americans say they are not counting on it to pay for their retirement. The majority of those not counting on Social Security are Americans ages 35 to 44, according to the survey.
The survey also found that over 25% of Americans are planning to fund less than half of their retirement with Social Security.
While many Americans express little to no hope for Social Security covering their retirement, over half of respondents expressed confidence that they’ll be funding a large part of their retirement with Social Security. More than 20% of Americans are counting on this government-issued program to cover their entire retirement while over 30% believe the program will cover more than half of it.
Here’s How To Plan For Retirement Without Relying on Social Security.
While the majority of Americans are planning to rely on Social Security to fund all or some of their retirement, you can take matters into your own hands by saving for a retirement that doesn’t depend on these payments. By opening an IRA or 401(k) account, you can start saving for your own retirement — regardless of what ends up happening to Social Security by the time you retire.
“Creating a retirement plan without Social Security does not need to be complex,” said Jay Zigmont, Ph.D., CFP and founder of Childfree Wealth. “Start by paying off your debt as soon as possible and then focus on maxing out your retirement accounts. Getting rid of your debt now will allow you to invest more in the future. A great way to increase your retirement savings is to put any raises you get into your 401(k), 403(b) or whatever accounts you may have. For example, if you get a 3% raise, increase your 401(k) contribution by 3% at the same time. This will help prevent lifestyle creep and keep saving for retirement as a focus.”
Remember the 4% Rule
Trying to determine the perfect amount of retirement savings that will allow you to live out your desired retirement can be overwhelming. Thankfully, there are a few great rules of thumb that can help you determine the best savings goal for you.
“The 4% rule is a guideline stating that you should take out only about 4% of your retirement savings annually,” said David Rosenstrock, director and founder of Wharton Wealth Planning. “Each person’s situation is unique but having some guidelines can help you prepare. One common estimate is that you will need approximately 70% of your annual pre-retirement income in retirement.”
Forecast Your Healthcare Expenses
It’s important to consider healthcare costs when planning for retirement.
“Healthcare costs pose one of the most serious risks to retirement security, so it’s important to understand how to plan for this major expense and navigate the system,” Rosenstrock said. “A study conducted by the Employee Benefit Research Institute estimated that a couple with drug costs at the 90th percentile throughout retirement would need savings of about $325,000 by age 65 to have a chance of covering their healthcare expenses during retirement. About half of people 65 and over won’t incur any long-term care expenses, and an additional quarter will pay less than $100,000. Fifteen percent, however, will pay $250,000 or more.”
Opt For a Delayed Retirement for More Savings
If you don’t feel confident about whether you’ll have enough money in retirement, don’t be afraid to delay your retirement for a few more years in order to grow your accounts. With longer average life expectancies and increasing medical advancements, you’ll be able to enjoy an incredible retirement despite a few extra years of work.
“Working past the traditional retirement age, either part or full time, is a great way to stretch and supplement retirement income,” Rosenstrock said. “Delaying retirement can have a significant impact on retirement finances by giving your existing retirement savings more time to grow and shortening the period of retirement you will need to pay for.”
Consider Taking Up a Side Hustle
Starting a side hustle is not only an extra stream of income, but it will also allow you to have more retirement options.
“If you are doing gig work or have your own small business, you may be able to create a Solo 401(k) or another retirement plan,” Zigmont said. “The bonus of creating a Solo 401(k) for your own small business is that you may be able to contribute both the employee and employer contributions (up to appropriate maximums).”
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Methodology: GOBankingRates surveyed 997 Americans ages 18 and older from across the country between August 9 and August 11, 2022, asking sixteen different questions: (1) How much money do you currently have saved for retirement?; (2) How much money do you think you’ll need to retire?; (3) Realistically, at what age do you want to be retired?; (4) At what age did you start saving for retirement?; (5) What worries you financially about retirement? (Select all that apply.); (6) Do you plan to work in retirement?; (7) What assets do you have in your retirement portfolio? (Select all that apply.); (8) How has the current inflation impacted your retirement plans?; (9) How much of your retirement do you plan to fund with Social Security?; (10) How do you feel about the future of Social Security when you retire?; (11) What percentage of your salary are you currently investing for retirement?; (12) Are you planning to move after your retirement?; (13) Where is your ideal place to retire?; (14) What government programs do you plan to use for your retirement? (Select all that apply.); (15) Do you have a pension plan?; and (16) How much do you think the average American has saved at the time they retire? GOBankingRates used PureSpectrum’s survey platform to conduct the poll.