Barring an act of Congress, Social Security will have to cut benefits by 2034. That’s a full year earlier than expected.
To address the program’s long-running funding shortfall. The Covid-19 pandemic, and resulting recession, sped up the expected depletion rate by a year.
But that’s not the scary part…
Social Security provides a basic level of monthly income to workers and their families after the workers have reached old age, become disabled, or died. The program now provides benefits to over 50 million people and is financed with the payroll taxes from over 150 million workers and their employers.
The trust funds on which Social Security relies to pay benefits have been running low for decades. The last official projection by the Social Security Administration indicated those funds could run out in 2035, at which point only 79% of promised benefits would be payable.
Fears that the program will completely run out of money and that benefit checks will stop have many nervous. According to a survey from Nationwide, 71% of adults felt that way and are concerned.
It’s highly unlikely that the fund will run out of money, given that it’s a pay-as-you-go system. However, it may be necessary to cut benefits in the future to contend with the fund’s shortfall.
Which brings me to the point of this article – relying on Social Security as the main, or only, source of retirement income is a terrible idea.
You see, Social Security was never designed for that purpose. The program was meant to be a safety net for Americans, for those who had no financial support. It was supposed to be a “third rail” of sorts.
Unfortunately, many Americans are, or will, rely heavily on Social Security to maintain their lifestyle in retirement. According to the Center on Budget and Policy Priorities, Social Security makes up a majority of cash income for 61% of elderly beneficiaries, and a third rely on this benefit for 90% or more of their income.
To have a worry-free retirement means you have to take things into your own hands. Here’s three things everyone should do in that regards:
- Contribute as much as possible to tax favored plans such as Roth IRA, Solo 401(k), and employer’s 401(k) or 403(b) retirement plans. Many only contribute the minimal amount needed to these plans to get the maximum employer matching contribution (usually between 3% to 6% of your salary). But that’s really short-changing yourself. These programs are really the main rails for which people to fund their retirements, not Social Security. My advice here? Dig deep, cut expenses and find ways to maximize these contributions. Tax-optimizing your retirement is the best way you can get the most out of your retirement money.
- Save and invest wisely with a portion of your after-tax income. It’s estimated that only 55% of Americans invest in the stock market. I will tell you that learning how to invest and setting aside a portion of your net income is one of the very best things you can do to build wealth. Yet so many refuse to do so, with the pet excuse of “there’s not enough left over”. Friends, you don’t need huge sums to invest in the stock market. That’s the beauty of it. By investing in good quality stocks, you become a fractional owner of a company and can enjoy the benefits of long-term ownership – a rising stock price and dividends. Just like you apportion part of your pay for the mortgage and electricity bill, do the same for investment capital. Start today to build a fund for this purpose. While you’re building the fund, read everything you can about investing so that you become a student of investing, not an uninformed speculator. Gambling in the stock market will most likely make you poor, while intelligently investing in the market can make you a fortune.
- Start a side gig. Everyone has a marketable skill. For many, that skill is in addition to the skills needed for their day job. That means there’s probably some method for you to make extra money that’s just sitting on a shelf unused. The internet is the great equalizer. It truly has allowed millions of people to become entrepreneurs without the heavy upfront costs and overhead of business startups in the past. Think about what skills you have to market and take serious steps to start a business. Don’t worry that there’s already thousands of businesses out there in your category. The world makes a way for business that provides high quality products and services and genuinely takes care of customers. I have seen more millionaires created by this simple idea alone. They start something on the side and to their amazement, it turns into a huge money-making platform for them in just a few years. Start a business. It could make you a fortune!
While the existence of Social Security in the future isn’t really in question, its ability to be a major source of funds in retirement certainly is. Don’t rely on something so tenuous for your future. Start now to fund your retirement yourself. Don’t procrastinate like so many others and be left in a panic later. That’s a game for people who want to struggle in their older years. Build wealth, plan ahead and chart a better future for yourself, one where you’ll be financially free.
Be free. Nothing else is worth it.
P.S. Why aren’t you wealthy yet? It’s because of something you don’t know. Otherwise you’d already be rich. Isn’t it time to learn what you don’t know? Consider signing-up for my newsletter below, to help you build wealth faster.
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