How to Retire Rich Without Social Security
It’s no secret that our country’s Social Security program is running out of money.
The Social Security system is paying out in benefits more than it’s collecting in tax revenue and as a result they’re dipping into the Social Security trust fund to make up the difference.
If Congress takes no action to fix the problem, starting in 2034 retirees are going to see a 23% cut in social security payments.
Today, the average retiree receives about $1,300 per month from SS. If this massive cut happens, your SS cheque will drop to about $1,000. This will lead to an economic crisis worse than the 1930s depression.
Anyone in their twenties, thirties, heck, even forties might be thinking: “Gee, I feel bad for Dad or Grandpa, but you know it’s not my problem.”
Well the reality is it is your problem. Because Congress will find the money…and you know where they’ll find it? Tax increases on American workers.
What can you do?
The key is to start saving. You have to assume you’re not going to get much help from our government, you’re not going to get much help from your employer, and your financial future is all up to you. And that means you need to save more and save a lot.
The issue is we’re really not good at preparing for retirement. The vast majority of Americans are reaching retirement with around $150,000 saved in their 401(k) plans…for the whole rest of their life. That’s clearly not enough.
Here are some strategies that will allow you to retire rich without having to rely on social security:
Max Out Your 401(k) Match
You can’t rely on your employer to bail out your retirement but if they’re offering to help, then at least make the most of it.
In 2019, the IRS allows those up to age 50 to contribute $19,000 to a 401(k) plan or a similarly structured 403(b) or 457 plan. If you’re older than 50, you can contribute up to $25,000 in 2019.
Most workplaces offer employees the choice of using a traditional plan, which offers an immediate tax deduction or a Roth account, which eliminates a deduction on contributions in exchange for tax-free withdrawals in retirement.
The biggest perk to a 401(k) plan is a lot of employers will match a portion of your contributions. This can be set up in different ways, like a dollar-for-dollar match or a percentage match of contributions up to a certain amount. Take advantage of your employer’s match program, it’s an easy way to boost savings.
Build Your Own Pension Through Tax-Free Savings
Start saving early at the highest percentage you can even if you’ve been putting this off. But don’t let your savings get eaten up by taxes. Minimize what you owe the government by using IRAs, health savings accounts and your employer’s 401(k).
IRAs offer traditional and Roth options, so you can choose to receive tax savings now or in the future.
But contribution limits for IRAs are significantly lower than for 401(k) plans – $6,000 for workers up to age 50 and $7,000 for those 50 and older in 2019.
If you’re eligible for a high-deductible health insurance plan with single coverage, you can contribute $3,500 to an HSA in 2019. With family coverage, you’re looking at contributions up to $7,000.
When you contribute money to these accounts, your money is tax deductible, grows tax-free and can be used tax-free for qualified medical expenses. At age 65, withdrawals can be made from an HSA for any reason and only regular income taxes will apply.
Invest, Invest, Invest
You can’t just save money for retirement and expect it to grow. You need to invest properly. And I don’t mean just putting all your savings into the S&P 500 and hoping for the best.
Index funds that track the market are great, but shouldn’t be your only strategy. If you’re still several years away from retirement, you may want to put your savings in more aggressive growth funds to maximize potential returns.
And if you’re nearing retirement, you might take the opposite approach and diversify your savings into less risky investments. It all depends on your circumstances but leaving your money sit in a savings account earning half a percent is no good.
Find Other Guaranteed Sources of Income
Social Security gives you a steady monthly income, regardless of how the market performs. But an annuity can do the same.
If you’re looking for peace of mind, a variable annuity might be right for you. Payments are fixed though, so if you happen to die prematurely, any extra principal is pocketed by the insurer. But, annuities can be another source of guaranteed income to look into.
Claim What’s Yours, Early
There’s no telling what could happen to Social Security. While the full retirement age is 66, you can begin claiming benefits as young as 62. If you do claim early, you lock in a permanent 30% reduction in benefits.
But with the future of SS in question, it might not be such a bad move to claim as much as possible before the program runs out.
Still, I think it’s unlikely that Congress will let SS collapse by 2035. So it’s best to wait and maximize your SS benefits. If you’re married, you might be able to hedge your bets by having one person claim benefits early and let the other wait.
SS was never meant to replace 100% of your pay at retirement. It was designed to prevent people from going into poverty like in the great depression.
However even though it’s likely not going to disappear, save like it doesn’t exist and you’ll thank me later.
To a richer life,
— Nilus Mattive
Editor, The Rich Life Roadmap