I’m 48 and worried Social Security won’t be there for me – should I be saving more?

Meet Michael, a 48-year-old professional who has been steadily saving for retirement through his 401(k) and IRA. But with all the talk about Social Security running out, he’s growing anxious. Will Social Security even be there for him when he retires in about 20 years? Should he be saving more now to make up for the potential loss?

Michael’s concerns are understandable—after all, news about the future of Social Security can be alarming. But while the system faces challenges, it’s unlikely that Social Security will be wiped out entirely. Here’s why, and what Michael can do to ensure his financial security.

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1. Why Social Security Is Unlikely to Disappear Completely

There’s a lot of talk about Social Security “running out,” but it’s important to clarify what that actually means. Social Security is funded through payroll taxes, and as long as people are working, money will continue to flow into the system. However, due to demographic shifts—like the large number of baby boomers retiring and fewer workers paying into the system—Social Security is projected to face a shortfall by 2034 if no changes are made.

This doesn’t mean Social Security will disappear entirely. Even if the Social Security Trust Fund becomes depleted, the program would still be able to pay around 75% of benefits from ongoing payroll taxes. It’s more likely that Congress will make adjustments to the system—such as increasing the payroll tax, raising the retirement age, or adjusting benefits—to keep the program solvent.

So, while Michael might not receive 100% of his expected Social Security benefits, it’s unlikely that the program will be completely eliminated. However, it’s always wise to plan ahead in case there are reductions or delays in benefits.

2. Should Michael Be Saving More?

Given the uncertainty around Social Security, it’s a good idea for Michael to evaluate whether he’s saving enough for retirement. He should aim to have multiple income streams in retirement, and his savings should ideally be sufficient to cover his needs even if Social Security benefits are reduced.

The general rule of thumb is to save enough so that you can replace 70% to 80% of your pre-retirement income from a combination of savings, investments, and Social Security. If Michael hasn’t already calculated how much he’ll need to retire comfortably, now is a great time to do so.

3. Maximizing Retirement Savings

If Michael is worried that his current savings won’t be enough, there are several ways he can boost his contributions, especially since he’s still several years away from retirement.

• Max Out 401(k) Contributions: For 2024, individuals under 50 can contribute up to $23,000 to their 401(k), but if Michael hits 50 before he retires, he can take advantage of catch-up contributions, allowing him to contribute an additional $7,500, bringing the total to $30,500 annually. This extra savings can help him significantly boost his retirement fund in the years leading up to retirement.
• Consider an IRA: Michael can also contribute to a traditional or Roth IRA. For 2024, the contribution limit is $7,500 if you’re 50 or older. A Roth IRA, in particular, offers tax-free withdrawals in retirement, which can be a valuable asset in combination with Social Security and other taxable retirement income.
• Set a Goal for Personal Savings: Outside of tax-advantaged retirement accounts, Michael can also set up a personal investment or brokerage account. This gives him more flexibility with withdrawals and allows him to invest in stocks, bonds, or other vehicles. If Social Security benefits are reduced, having this additional account could provide a buffer for any gaps.

4. Diversifying Income Sources

Michael should also consider diversifying his income streams to protect against potential changes to Social Security. Here are a few ways he can do this:

• Consider Real Estate Investments: If Michael is interested in real estate, he could explore purchasing a rental property. Rental income can serve as a steady source of income in retirement, providing additional financial security if Social Security benefits are reduced.
• Delay Social Security: While it’s unlikely Social Security will be wiped out entirely, if Michael can afford to delay claiming benefits until age 70, he can increase his monthly payments by up to 8% for each year he delays past his full retirement age. This can maximize his benefit even if the overall system is adjusted.
• Continue Working Part-Time in Retirement: If Michael enjoys his career or has a passion he could monetize, working part-time in retirement could provide extra income. This could allow him to leave more of his retirement savings untouched for later in life or help offset reduced Social Security payments.

5. Stay Informed and Flexible

The future of Social Security is likely to involve adjustments, but rather than panicking, Michael can take a proactive approach by staying informed about legislative changes and adapting his retirement strategy as needed. He should periodically reassess his retirement savings goals and adjust his contributions as necessary.

It’s also potentially a good idea for Michael to work with a financial advisor who can help him plan for potential changes in Social Security and guide him toward strategies that ensure long-term financial security. A fiduciary advisor can help him develop a holistic retirement plan that considers not only Social Security but also his personal savings, investments, and potential income streams.

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