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Retirement Planning Without Social Security: 5 Tips for Gen Z

Peopleimages /
Peopleimages /

Social Security is one of the most popular entitlement programs in the United States and the likelihood that this benefit may be reduced or end completely 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 entering retirement.

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

Open an Individual Retirement Account (IRA)

Gen Zers may 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. These earnings grow tax deferred, but are subject to ordinary income taxes if and when you decide to withdraw any money before age 59 ½.

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 have held a Roth IRA account for five years, you may withdraw earnings income tax-free at age 59½. Those that withdraw earnings earlier are subject to a 10% penalty.

“If you’ve had these accounts set up for some time and made contributions regularly, then the potential growth of these accounts could make up for Social Security reductions,” said Dustin C. Newton, CFP and financial advisor at Ascent Financial Group.

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Defined Contribution Plans

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

Defined Pension Plans

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

While these plans are not as common as they used to be, you can check in with your employer to see if they offer pension benefits and learn more about how eligibility, including the number of years you may need to work for the organization, is determined for these benefits.

Continue Putting Money Into Personal Savings

If you have always been mindful to tuck a percentage of your paycheck into savings, keep up with that healthy financial habit. The amount you have in personal savings may be used to make up the difference in Social Security benefits later in life.

“Funds tucked away in a savings account may be used to purchase more long-term options, such as an annuity,” said Newton.

Every Gen Zer 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 consider 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 doesn’t help make ends meet and there are not enough or no benefits in an individual retirement account, employer contribution plan, pension plan or savings, you may need to consider delaying retirement.

While delaying retirement may sound like it takes you a step backward, it can actually be a powerful way for Gen Zers to continue saving more money. The latest you can delay claiming Social Security is at age 70. If you delay Social Security, your annual income may increase up to 8% for the rest of your life through compounded interest. If you are age 62 and postpone Social Security until you are 70, this can result in a 77% increase in annual income for the rest of your life.

In addition to receiving the maximum payment available, those that delay retirement until age 70 will also be covered under health insurance. Most Americans need to work to at least age 65 when they qualify for Medicare.

The Value of Multiple Income Streams in Retirement

Those that plan on Social Security as their primary source of income in retirement may find it challenging to deal with the reduction in benefits. The best way for Gen Zers to manage this, as they look toward the future of their retirement years, is to create multiple streams of income.

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

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This article originally appeared on Retirement Planning Without Social Security: 5 Tips for Gen Z