If you had plans to have Social Security as your only source of money for retirement, you might want to rethink. The benefits from Social Security alone cannot cover your living expenses. According to the Social Security Administration, the average benefit, as of October 2023, is about $1,976 a month and this amount is hardly enough to pay for housing, health care, food, and other necessities.
Besides, no one knows about Social Security’s future. The newest report suggests that by 2035, the program will only be able to pay its beneficiaries about 83% of the scheduled benefits. In effect, there could be a drastic reduction in payments expected by future retirees.
So instead of relying on Social Security, it is time to start thinking of your own financial future. The good news: there are some smart, sassy, and simple ways in which to do that.
How to start saving for retirement when you do not have much money
Many people put off saving for retirement because they feel they do not earn enough. But even small steps now can make a big difference in the future. Here are some ways to start:
- Use employer-sponsored retirement plans: If your job offers a 401(k) with a match, contribute as much as you can to take full advantage of the free money from your employer.
- Open an IRA: If you do not have access to a 401(k), consider a traditional or Roth IRA. The tax advantages will help your money grow faster.
- Start small and increase over time: Even if you can only save a little right now, start with what you can and increase the amount as your income grows.
- Cut unnecessary expenses: Look at your budget and see where you can make small sacrifices to put more money into savings.
What are the best retirement accounts to invest in?
The right retirement account for you depends on your financial situation and goals. Here are some of the best options:
- 401(k): Offered by many employers, a 401(k) allows you to contribute pre-tax income, and many employers will match a portion of your contributions.
- Roth IRA: You pay taxes on the money you put in now, but your withdrawals in retirement are tax-free. This is great if you expect to be in a higher tax bracket later.
- Traditional IRA: Contributions are tax-deductible, but you will pay taxes on your withdrawals in retirement.
- Health Savings Account (HSA): If you have a high-deductible health plan, you can use an HSA to save for medical expenses in retirement.
Should you pay off your mortgage before retiring?
Housing is one of the biggest expenses in retirement, so eliminating your mortgage before you retire can make your money stretch further. Here are some things to consider:
- Paying off your mortgage early saves on interest and reduces monthly expenses.
- If your mortgage has a low interest rate, investing extra money might provide a better return.
- Consider downsizing to a more affordable home to lower housing costs.
Read more: One Social Security change every worker should make in 2025 to increase their benefits in the future
How can you reduce expenses to save more for retirement?
Here are some simple ways to save even more money:
- Moving to a cheaper area: Where possible, consider shifting to a city or state that has a lower cost of living.
- Cut housing expenses: Downsizing or refinancing your mortgage will free up more setting aside for savings.
- Debt-elimination: Put away credit cards and other loans, which equal more expenses not accounted for in retirement.
- Cutting out the unnecessary spending: Tiny changes like cooking at home and cancelling unused subscriptions make a huge difference.
What is the best way to prepare for rising healthcare costs?
Health care can be one of the largest costs in retirement. Steps to prepare for it:
- Opena health savings account (HSA): An HSA allows you to save money tax-free for medical expenses.
- Be healthy now: Preventive care, a good diet, and exercise can go a long way in bringing down future health care costs.
- Consider long-term care insurance: This can help pay for expenses if you require assisted living or nursing care in the future.
Read more: One Social Security change every worker should make in 2025 to increase their benefits in the future
Should you work part-time in retirement?
Many retirees choose to work part-time, not just for extra income but also to stay active and engaged. Some benefits of working part-time in retirement include:
- Extra income to supplement savings and Social Security.
- Health benefits if you work for an employer that offers insurance.
- A sense of purpose and social engagement.
Even a few hours a week doing freelance work, consulting, or working in a low-stress job can help stretch your retirement savings.
