Social Security is a benefit millions of Americans look forward to enjoying as they enter their golden years. But for millennials — that is, those born between 1981 and 1996 — Social Security has become more of a fantasy than a reality.
As a millennial myself, I’m not factoring in Social Security into my retirement plans at all. Here’s why and what I’m doing instead.
Why Social Security won’t be enough for millennials
It’s no secret that Social Security programs as we see them today are in trouble. The Social Security Administration (SSA) has widely advocated for younger generations, like gen Z and millennials, to save as much as they can for their retirement years because the Social Security Trust Fund is rapidly depleting. It’s estimated that by 2041, the fund will run out of money, forcing it to reduce benefit payments by 22% or more.
Based on today’s average Social Security check of $1,657, that means 30 years from now we can expect to receive a whopping $1,292 per month in benefits. This is hardly enough to live on, and certainly nowhere near the 40% of pre-retirement income the benefits are supposed to replace. Millennials also have to consider the fact that things will be more expensive in the future thanks to several decades worth of inflation to live through.
Simply put, millennials will need more money to live off of when we’re retired, but our benefits from Social Security will be far less. It’s definitely a dismal reality check, but the cool thing is that we’re still young enough to recognize these challenges and make changes to our retirement plans to set us up for success.
What I’m doing instead
Social Security was never meant to be a retiree’s sole income. People were always expected to have a mix of savings, investment income, and pensions to help them get by. Since Social Security may not be there and pensions aren’t widely available to most millennials today, that leaves investment income and savings to be our sole support for our retirement years.
I’m actively putting money into multiple retirement savings accounts including a 401K plan, individual retirement account (IRA), and general investment account. That will put money to work investing in things like stocks and real estate investment trusts (REITs) as well as less traditional investments like physical real estate. Time and interest can do wonders for compounding savings. The more I put away now, the more time my savings has to grow. So aggressively contributing around 10% to 15% of my income into these accounts today is an important part of my retirement plan.
I invest for both income and growth. By focusing on high-growth stocks, I can turn a small amount of savings into a much larger sum 10 to 20 years from now. And by purchasing reliable dividend-paying REITs, a small investment may generate a meager dividend income stream today, but it has the potential to become much more as dividends are increased. By focusing on both I’m able to address the two important aspects of my retirement plan — investment income and savings.
I’m also adding physical real estate to my retirement plan because of the slew of benefits it can offer like passive income streams, tax deductions and savings, and its appreciation potential. Buying a few rental properties in your 30s to 50s could generate hundreds if not thousands of dollars of revenue per month in your retirement years. Plus, if I ever run out of savings, I can liquidate a rental property to generate more cash to live off of, like a backup savings account.
Planning for retirement isn’t exactly fun, but avoiding it can lead to major challenges down the road. Start by figuring out how much you expect to need in your retirement years and work backward from there. Putting away a few hundred dollars each month in your 30s or 40s and investing it can set you up for a very comfortable future.
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