For decades, Social Security has provided a financial safety net for millions of Americans in retirement. However, warnings about its long-term viability are growing louder.
The Social Security Board of Trustees’ most recent report indicates that the program’s trust funds could be depleted by 2034. If that happens, benefits may be reduced unless Congress steps in.
Building a plan beyond Social Security is essential
The concept of Social Security “running out” does not imply that payments will cease entirely; however, without reforms, only about 80% of scheduled benefits will be payable beginning in 2034. This is because incoming payroll taxes will only cover a portion of the promised payouts.
For people in their 40s, 50s, or younger, that shortfall could significantly reduce retirement income, especially if they were relying on full Social Security benefits. That is why financial experts advise Americans to look beyond government benefits and instead focus on diversifying their income streams.
Employer-sponsored retirement accounts, such as 401(k), are one of the most reliable ways to accumulate long-term wealth. Many employers offer to match contributions up to a specific percentage.
That match is essentially free money, and failing to take full advantage could result in losing tens of thousands of dollars over time.
Another option is to open an Individual Retirement Account (IRA). Traditional IRAs allow contributions to grow tax-deferred, whereas Roth IRAs grow tax-free and provide tax-free withdrawals in retirement. Choosing the appropriate type is determined by your income and tax situation.
Aside from retirement accounts, investing in the stock market through diversified index funds or ETFs can result in significantly higher long-term returns than simply saving cash in a low-interest bank account. While investing entails risk, long-term historical data shows that stocks typically outperform inflation and grow wealth over time.
For those concerned about the market, real estate investing, whether through rental properties or Real Estate Investment Trusts (REITs), provides another way to generate passive income and build equity. As housing demand rises in many regions, real estate remains a viable hedge against inflation and uncertainty.
The gig economy and digital platforms have also made side hustles and entrepreneurial ventures more accessible than ever before. Earning extra money now can be wisely invested to help you in retirement, especially if Social Security becomes less reliable.
Do not overlook Health Savings Accounts (HSAs). If you have a high-deductible health plan, HSAs allow you to make pre-tax contributions, grow them tax-free, and withdraw them tax-free for medical expenses.
Once you reach age 65, you can use HSA funds for non-medical expenses without incurring a penalty.
Finally, budgeting and debt reduction should be integral parts of any strategy. Reducing debt means spending less of your income on interest payments and having more to save or invest for the future.
