The economic impact of COVID-19 has been felt from coast to coast. And, unfortunately for many pre-retirees, it could potentially impact Social Security benefits as well.
A new report indicates that if Congress doesn’t take action to address funding, benefits will be cut to 78 percent by 2034. This is one year earlier than previously forecast. Social Security’s long-term funding has been a concern for some time now, but it appears that COVID-19 has shortened the timeline.1
In December 2020, the average monthly benefit for a retired individual receiving Social Security was $1,544. Even with benefits at full funding, you will likely not be able to meet your financial needs in retirement on Social Security alone. For those who have the opportunity to plan and prepare, Social Security doesn't have to be their only source of retirement income. There are a few options to consider when preparing to supplement the difference between what you earn in Social Security benefits and what you need to thrive in retirement.2
Individual Retirement Accounts - There are two types of Individual Retirement Accounts, or IRAs, to choose from— traditional IRAs and Roth IRAs. If you’ve had these accounts set up for some time and made contributions regularly, then the potential growth of these accounts may make up for Social Security reductions.3,4
Defined Contribution Plans - If your employer offers a defined contribution plan, such as a 401(k), 403(b), or 457 plan, the accumulated income in these accounts could supplement Social Security, especially if this amount has had time to grow.
Defined Benefit Plans - Though not as common as they used to be, pensions are a type of defined benefit plan. Benefits established by an employer take into account work history and salary to determine benefits.
Personal Savings - Your personal savings could be used to help make up the difference in Social Security benefits. If your savings may become your main source of Social Security supplementation, then consider consulting a financial advisor who can help you determine a long-term, more sustainable solution.
Continued Employment - Unfortunately for some retirees and pre-retirees, if Social Security does not help make ends meet, and the above options are not available or don’t provide enough benefits, then it may be time to consider postponing your retirement. The good news, though, is that working while collecting Social Security could potentially increase your benefit amount.5
1. Treasury.gov, August 31, 2021
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.