Planning for retirement without Social Security: 5 tips for Gen Z



Social Security is one of the most popular benefit programs in the United States and the likelihood of this benefit being reduced or ceasing altogether is still a common Social Security myth. What is universally recognized, however, is that Social Security is not designed to act as the sole source of income for anyone retiring.

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Gen Z may have decades ahead of them before they hit their retirement years, but they can start planning now for alternative income streams so they can retire with Social Security as a bonus.

Open an Individual Retirement Account (IRA)

Gen Zers can choose to open either a Traditional IRA or a Roth IRA.

A traditional IRA is tax-deferred, meaning you may be eligible for a tax deduction each year you contribute to the account. This income increases tax-deferred, but is subject to ordinary income tax if and when you decide to withdraw the money before age 59½.

A Roth IRA sets a maximum on contribution limits each year. (In 2022, the maximum contribution for those under age 50 is $6,000.) If you’ve had a Roth IRA account for five years, you can withdraw your earnings tax-free at age 59½. Those who withdraw their winnings early are subject to a 10% penalty.

“If these accounts have been open for a while and you’re making regular contributions, the potential growth in these accounts could offset Social Security cuts,” said Dustin C. Newton, CFP and financial adviser at Ascension Financial Group.

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Defined contribution plans

If you work for a company that has a defined contribution plan, such as a 401(k), 403(b), or 457 plan, Newton recommends making contributions. Make sure you get the maximum matching contribution if your employer also offers it. Over time, Newton said income accumulated in these accounts can help supplement Social Security.

Defined benefit pension plans

Depending on where a Gen Zer works and if that organization offers retirement benefits, they may be able to use a pension to supplement their retirement.

Although these plans are not as common as they used to be, you can check with your employer to find out if they offer retirement benefits and learn more about how eligibility, including the number of years during which you may need to work for the organization is determined. for these benefits.

Keep putting money into your personal savings

If you’ve always thought about putting a percentage of your salary in savings, maintain this healthy financial habit. The amount you have in personal savings can be used to make up the difference in Social Security benefits later in life.

“Funds hidden in a savings account can be used to purchase longer-term options, such as an annuity,” Newton said.

Every Zer generation is different and what works best for each individual will depend on their situation. If you think your savings will become your primary source of Social Security supplementation, Newton recommends considering consulting a financial advisor who can help you determine a long-term, more sustainable solution.

Delay retirement

For some retirees and pre-retirees, if Social Security isn’t helping to make ends meet and there aren’t enough or no benefits in an individual retirement account, employer contribution plan, a retirement plan or savings, you may need to consider delaying retirement.

While delaying retirement may seem like a setback, it can actually be a powerful way for Gen Z to keep saving more money. You can delay applying for Social Security until age 70 at the latest. If you delay Social Security, your annual income can increase by up to 8% for the rest of your life thanks to compound interest. If you’re 62 and defer Social Security until 70, that can mean a 77% increase in your annual income for the rest of your life.

In addition to receiving the maximum payout available, those who delay retirement until age 70 will also be covered by health insurance. Most Americans must work until at least age 65 when eligible for Medicare.

The value of multiple income streams in retirement

Those who plan on Social Security as their primary source of income in retirement may struggle to cope with reduced benefits. The best way for Gen Zers to manage this, as they look ahead to their retirement years, is to create multiple streams of income.

“The key is to never rely on just one source to meet your future retirement income needs,” Newton said. Diversifying your future retirement income streams ensures that you are not solely dependent on Social Security during your retirement years.

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About the Author

Heather Taylor is Senior Financial Writer for GOBankingRates. She is also the editor and brand mascot enthusiast for PopIcon, Advertising Week’s blog dedicated to brand mascots. She has been featured on HelloGiggles, Business Insider, The Story Exchange, Brit + Co, Thrive Global and other outlets.

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