According to a recent report from Nationwide, 59 percent of older workers are worried that Social Security will be unable to pay their benefits in retirement. They may have a reason to be scared. As the Social Securities Trustees report explained, once its trust funds are gone — it could be as early as 2035 — benefits could be reduced by as much as 20 percent. That’s not the same as not receiving your benefits at all, but it is a reduction.
The best way to combat worries over Social Security is to not rely on it. If it’s still paying out 100 percent benefits when you retire, great. If it’s not, you’ll have a plan in place to keep you afloat. The plan should be to invest in an IRA, a 401(k), or other retirement account and to do it as soon as possible. Currently, IRA max contributions are $6,000 per year for workers under 50, and $7,000 per year for workers 50 and over. Contribution maxes are much better for 401(k)s. If you’re under 50, you can stash $19,000 per year, if you’re 50 or over, it’s $25,000 per year.
Even if you can’t max out your IRA or 401(k) contributions, the key is to invest as early as possible while capturing any matching dollars offered by your employer. As USA Today reports, say you can save $500 a month in an IRA or a 401(k). Let’s assume a 7 percent return. If you save that amount for 40 years, your ending balance will be about $1.2 million. However, if you save that amount for only 20 years, your ending balance will be $246,000. That’s a huge difference.
No matter what you can afford to save per month, the earlier you do it the better. Don’t count on Social Security to bail you out during retirement and chances are you’ll be happy with that decision.