By Kevin Theissen
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.
Some reports suggest that if Congress doesn’t take action to address funding, benefits will be cut to approximately 80% by 2034. Social Security’s long-term funding has been a concern for some time now, but it appears that Covid-19 has shortened the timeline for these projections.
The thing is, even with Social Security fully funded, this benefit may not meet the financial needs of many retirees. In December 2020, the average monthly benefit for a retired individual receiving Social Security was about $1,500. For those who have the opportunity to plan and prepare, Social Security doesn’t have to be the only source of retirement income. There are a few ways to supplement the difference between Social Security benefits and the amount you need to thrive in retirement.
Individual Retirement Accounts
There are two types of Individual Retirement Accounts (IRAs) — traditional IRAs and Roth IRAs — and both are designed to grow over time. If you’ve had these accounts set up for some time and made contributions regularly, then their potential growth could more than make up for Social Security reductions.
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 are determined according to the employee’s work history and salary.
Personal Savings
It is possible to use personal savings and Social Security benefits to help maintain a lifestyle. But those who plan to use their savings as a main source of Social Security supplementation should consider consulting a financial advisor. They can help you map 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? Continuing to work, while collecting Social Security, could potentially increase your benefit amount.
Kevin Theissen is the owner of HWC Financial in Ludlow.
