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.
“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.
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.
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.
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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