Social Security Is Running Out

Do You Have a Retirement Backup Plan?

As we write this, Social Security is projected to run out by 2033 — leaving retirees in the lurch without payments. This isn’t the first time Social Security’s balance has been an urgent issue, but COVID-19 relief hit the fund hard.

Of course, it’s still possible that the government will find a way to top up Social Security in time. They’ve done it before! But you can’t count on them to secure your retirement. To make sure you can have the lifestyle you want, consider these three alternatives.

Option 1: Rely on a cash reserve.

Most people go into retirement with some savings in the form of an IRA or 401(k). These are usually supplementary to Social Security, but they don’t have to be! If you have enough income and/or a savvy investment strategy, you may be able to survive on the fund alone.

In this scenario, Vanguard recommends keeping most of your savings in stocks, bonds, and mutual funds, and pulling out a “cash reserve” every two years or so. You can move that money into a low risk money market fund or checking account to pay your daily expenses while the larger amount earns returns.

Option 2: Purchase an annuity.

Pensions used to be a reliable alternative to Social Security, but most companies don’t offer them these days. An alternative that will provide you monthly payments for life is an immediate annuity. You can buy an annuity through your insurance company for a lump sum, and they’ll pay that money back to you over time. This is a good option if you’re worried about going through your retirement savings too fast, or if you come into a large sum of money (i.e., selling your business) and want to ensure it goes to your retirement.

Option 3: Leverage real estate.

If you’re in the financial position to purchase an income property and rent it out, those monthly rent payments can support you in retirement just like Social Security would. If not, you can still leverage your real estate by taking out a reverse mortgage on your own home, which will convert your equity into monthly payments.

Note: For retirement advice tailored specifically for you, consult a financial advisor.

-Randy Sklar


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