Social Security Won’t Cover Your Retirement? How To Prepare Now

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Whether or not Social Security retirement benefits will be around when today’s young workers retire is up for debate. It’s currently paying out more than what’s coming in, and the Social Security trust fund is expected to run out of money by 2034. However, it’s a pay-as-you-go system, funded by payroll taxes, which means future retirees can expect to receive their benefits — they just shouldn’t rely on them.

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“In the past, Social Security benefits, plus pensions from their employer, were more than enough to carry a retiree through retirement,” said Jon Lawton, a managing partner, fiduciary advisor and certified financial planner from OpenAir Advisers. However, the introduction of the 401(k) shifted the responsibility of saving for retirement from the employer to the employee, he explained. 

Unfortunately, the majority of Americans aren’t on track to save enough. The median retirement account balance for 55- to 64-year-olds is only $120,000, which translates to a retirement income of just 1,000 per month spread out over 15 years. One in four Americans have no retirement savings at all.

Retire Comfortably

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So how can you ensure you have enough money to live comfortably in retirement, with or without Social Security? Here are five ways.

1. Invest Your Money

Having a well-funded savings account is great. It’s important to have cash set aside for financial emergencies and big-ticket purchases. However, your money won’t grow fast enough in a low-interest deposit account to support your needs in retirement.

That’s why it’s crucial to invest your retirement savings in stocks, bonds and other securities — ideally, in a tax-advantaged account such as a 401(k) or IRA. If you aren’t sure which funds to choose or how aggressively to invest, you can always get advice from a fee-only financial advisor. Some employers even offer free financial planning as an added benefit.

Find Out: All You Need To Know About Collecting Social Security While Still Working

Retire Comfortably

2. Get Your Full Employer Match

Many employers offer to match employees’ retirement contributions, which can help you meet your savings goal much faster, according to Blaine Thiederman, a certified financial planner and founder and lead advisor at Progress Wealth Management in Denver. Typically, they will match a percentage of your contribution, up to a certain percentage of your total salary. In some cases, they may match your contributions up to a certain dollar amount, regardless of how much you earn. Either way, it’s free money you shouldn’t pass up.

3. Max Out Your HSA

If you’re on a high deductible health plan, try to max out your health savings account and invest what you have inside of it. “HSAs are easily the most tax beneficial way to save for your future medical bills,” Thiederman said. Why? The contributions are made pretax, allowing you to reduce your taxable income and tax bill. The funds also grow tax-free. And unlike a flexible spending account, any unused money rolls over to the next year. At age 65, you can use the funds for any purpose, not just paying for medical expenses.

Retire Comfortably

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4. Get Rid of Debt

If you have a car loan, student loans, credit cards or a mortgage, aim to pay them down as much as possible before you retire. “Less money going out every month makes it that much easier to afford life without Social Security,” Thiederman said. If you can’t or don’t want to completely pay off your loans, look into refinancing during low-interest rate environments (like now) to help reduce your payments.

5. Create a Budget and Stick To It

Finally, it’s important to take a holistic look at your finances and figure out where each dollar should be going. “Many clients I’ve worked with have a hard time sticking to a budget,” Thiederman said. “Year after year, they find themselves not saving enough.” That means they not only scramble to make up for decades of poor spending habits, but have already missed out on the compounding effects of the market. Budgeting takes discipline, but once you have it down, it’s well worth the effort.

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