5 tips for Gen Z
5 tips for Gen Z

5 tips for Gen Z

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Social security is one of the most popular eligibility programs in the United States, and the likelihood that this benefit may be reduced or completely discontinued is still a common social security myth. What is universally recognized, however, is that social security is not designed to serve as the only source of income for everyone who enters retirement.

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Gen Z may have decades ahead of them before reaching their retirement year, 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 pension account (IRA)

Gen Zers can choose to open either a traditional IRA or a Roth IRA.

A traditional IRA is tax deferred, which means you may be eligible for a tax deduction each year you contribute to the account. This income grows tax deferred, but is subject to ordinary income tax if and when you decide to withdraw money before the age of 59.

A Roth IRA sets a maximum on contribution limits each year. (In 2022, the maximum contribution for those under 50 is $ 6,000.) If you have had a Roth IRA account for five years, you can raise income tax-free at age 59½. Those who deduct earnings earlier are subject to a 10% fine.

“If you’ve had these accounts set up for some time and contributed regularly, then the potential growth of these accounts can compensate for reductions in social security,” 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, such as a 401 (k), 403 (b) or a 457 scheme, Newton recommends making a contribution. Make sure you get the maximum matching contribution if your employer also offers it. Over time, Newton said, the accumulated income on these accounts can help supplement social security.

Defined pension schemes

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

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

Continue to put money into personal savings

If you have always been careful about saving a percentage of your paycheck in savings, follow the healthy financial habit. The amount you have in personal savings can be used to offset the difference in social benefits later in life.

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

Each Gen Zer is different and what works best for each one depends on their situation. If you think your savings will be your primary source of social security benefits, Newton recommends considering consulting a financial advisor who can help you determine a long-term, more sustainable solution.

Postpone retirement

For some retirees and early retirees whose social security does not help to make ends meet and there are not enough or no benefits to an individual pension account, employer contribution scheme, pension scheme or savings, you may want to consider postponing retirement.

While postponing retirement may sound like it takes you a step back, it can actually be an effective way for Gen Zers to continue saving more money. The last time you can defer social security claims is at the age of 70. If you defer social security, your annual income can increase up to 8% for the rest of your life through compound interest. If you are 62 years old and defer social security until you are 70, it can result in a 77% increase in annual income for the rest of your life.

In addition to receiving the maximum payout available, those who defer retirement to age 70 will also be covered by health insurance. Most Americans must work for at least 65 years of age when qualifying for Medicare.

The value of multiple income streams upon retirement

Those who plan social security as their primary source of income in retirement may find it challenging to cope with the reduction in benefits. The best way for Gen Zers to cope with this as they look to the future of their retirement year is to create more income streams.

“The key is never to rely on just one source to meet your future retirement income needs,” Newton said. Diversifying your future pension income streams ensures that you are not solely dependent on social security in your retirement years.

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This article was originally published on GOBankingRates.com: Retirement Planning Without Social Security: 5 Tips for Gen Z

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