For centuries and generations, the thought of a retirement plan was non-existent. People lived simply, families lived in close proximity, expenses were low, and retirees generally had minimal problems living with their children. Times have changed. As some American retirees find themselves homeless or barely surviving, it’s crucial to have a plan. According to a study conducted by University of Pennsylvania, homeless shelters occupied by people aged 50 and older in New York City “topped 17,000 in 2017, nearly tripling from 2004.” And it also “projects that figure will approach 25,000 by 2030.”
Before going into a robust financial plan, let’s focus on the two things that Americans have generally relied upon in their golden years since August of 1935 (when President Roosevelt enacted the Social Security Bill): their children and a Social Security check. But both have unfortunately proven to be not so reliable.
Once upon a time, when having ten children was a norm, it was not that difficult to find one out of ten to lean on in retirement. In an era now where even five children is a handful, there is less optimism that your children are able to care for you. To compound the issue of less children to rely on, your children have astronomically higher expenses than yesteryear to be able to afford accommodations for you; while trying to keep up with their own expenses, such as healthcare, education, and housing, which is always increasing.
And now there’s Social Security. It’s clearly not enough to survive. It’s just supplemental, but many rely on it as their only source of income. According to the Survey of Income and Program Participation (SIPP), “National Institute for Retirement Security (NIRS) declares that 40.2% of retirees receive all of their income from Social Security.” That may be barely enough to live in a modest apartment without anything left over. And who knows how much will be offered in Social Security by the time you retire.
The Social Security that you’ve been paying into every check that you receive doesn’t actually exist in an account with your name on it. The government tends to spend that money elsewhere on other government projects, hoping for a better return. Although senior citizens have still been receiving their Social Security check over the years, that may not be so promising in the future.
According to a report from the Social Security Trustees, “the demographic bump of retiring baby boomers and their families will put an unprecedented burden on the Social Security system, causing the program to spend more than it takes in from payroll taxes.” Social Security is expected to be able to make full benefit payments until 2034. But as far as after 2034, well, that promise may not be fulfilled.
So, if you’re turning 62 by 2034, you may be out of luck, or at least out of the full amount that was promised. “By 2034, the reserve funds will be depleted and total revenue will not exceed the payouts. The only option will be to cut benefits to around 75 to 80% of benefits” the report says.
And that may not cut it. We should all have a backup plan that offers more financial security. Since we have a mechanic for our cars and a doctor for our health — it may be wise to consult with a financial advisor to secure our wealth. But if you’re not willing to get an advisor, you should at least make a plan for yourself on how you will retire comfortably. Ideally, you would want to be able to live as comfortably in retirement as you are living now. But without a plan, you will be forced to downgrade.
Here goes some options to consider to supplement your Social Security income:
401k
One of the easiest things to invest in is a 401(k). And the better the company, the better the benefits. Most companies match the amount you invest up to a certain amount, but some companies are known for matching at a higher amount. For example, Chick-Fil-A matches up to 5%, Accenture matches up to 6%, and AAA Club Alliance matches up to 7% of what you invest into your 401(k). The money is simply taken out of your checks, so you barely even notice it. And after thirty years of hard work, you can have over one million dollars sitting in your 401(k), a much better return than Social Security.
Stocks
With stocks, you can be hands-off and hire a broker to invest your money for long term investments, or you can be hands-on and do it yourself. Stocks are inherently risky, but the average return in the S&P 500 is 10-11% since 1926. For those who want to be hands-off, you can go through an investment broker who will invest your money into the S&P 500 to higher your probability of reaching the average return, or potentially even more.
While conservative investments in the S&P 500 can give you a slow but steady return on your investments, you can take some riskier investments with money you may be willing to lose for a very sizable return. Let’s take T-Mobile for example. Ten years ago, in 2011, their stock price was at $23 a share. In July of 2021, it was at $144 a share. So if you were to have purchased 200 shares at $23 a share, that would total a 4,600 investment (less than what some may earn in one year’s tax return), you would get a return of $28,000 in 2021 — not bad. Now imagine waiting another ten years and pulling out in 2031. Maybe it will reach double that amount to $56k? Although in general, stocks are a risk, there are well-established companies worth investing in with a very small chance of failure and strong probability of growth, such as Apple, Microsoft, and Amazon, among many others. Money in the stock market is growing slowly, while money sitting in a bank account actually loses value over time through inflation.
Real Estate
This may not be for everyone, but real estate is generally always going up, with a few hiccups along the way. While the Great Recession in 2008 may have put a scare on everyone, the market always recovers, and houses now are soaring to prices we’ve never seen.
Consider an investment property in a good neighborhood. In retirement, you can generate an income through renting the property (in addition to your Social Security and 401), or you can sell and make an exponential profit after 30 years. In Clarkston, GA for example, houses that were $80,000 in the early 90s are close to $300,000 today. So during retirement, whether you decide to rent it or sell it, it’s a win-win.