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Here's how to plan for retirement around Social Security uncertainty

Dhara Singh
Reporter

As the surplus in Social Security funds shrinks — with the expectation it will be depleted by 2035 — retirement savers need to be flexible in the face of an uncertain future for the entitlement program.

“For those currently saving for retirement, it is crucial to build a retirement strategy that does not rely predominantly on Social Security,” said Brian Walsh Jr., senior financial advisor at Walsh & Nicholson Financial Group, “since the benefits will more than likely either no longer exist or be reduced greatly without a major overhaul of the current program.”

Here’s what Walsh and other financial experts say you should do to build a strategy around Social Security uncertainty.

Close-up outdoor portrait of senior black woman looking thoughtful. Member of a black middle class America family.
Close-up outdoor portrait of senior black woman looking thoughtful. Member of a black middle class America family.

Take advantage of stock market tumbles

In 2020, American workers can contribute up to $19,500 to their 401(k) retirement accounts. On days the stock market tumbles due to coronavirus-related fears, employees should raise their contributions to these plans. By contributing more now and getting your employer’s minimum requirement for a match, you can hedge against Social Security uncertainty.

“Raise your contributions when the market is low and don’t raid your retirement account, except as a last resort, despite being told that you can spread out the taxes,” said Steve Kruman, financial planner at Bryce Wealth Management.

Take advantage of a Roth conversion if the stock market takes a hit, Kruman said. For future recessions, having a Roth IRA could offer financial security especially if you’re considering a withdrawal.

“If you haven’t participated in the Roth portion of your employer’s 401(k), do so now, so you can have tax-free money five years or more down the road,” Kruman said.

Delay your Social Security benefits

“There are a couple of important strategies people who have reached the eligibility age of 62 should bear in mind to maximize their benefits during these uncertain times,” said Chris Orestis, president of LifeCare Xchange, a financial brokerage firm. “First, people should delay electing to take their benefit once they turn 62 for as long as possible since the amount you will receive increases every year based on your attained age from 62 to 70.”

If you can, wait as long as your 70th birthday to dip into Social Security. Delaying benefits from your full retirement age to 70 will result in an 8% per year increase, said Patrick Rush, CEO of Triad Financial Advisors, a financial firm.

“This is a very generous annual pay raise, particularly in the current low interest rate and inflation environment,” Rush said.

Keep generating income

Those approaching retirement may want to consider working a couple of more years to make sure they aren’t too dependent on Social Security.

“It is important to continue generating an income for as long as possible past the age of 62 to stockpile savings and increase your monthly available cash beyond relying on just your Social Security benefit,” Orestis said.

Nearly a third of aspiring retirees plan to work part time to preserve their ideal lifestyle, according to a recent survey. This compares with just 2% of those who have already retired.

Even if you don’t plan on working a normal 9-to-5 job, consider alternative income sources, ranging from rental properties to even annuities. Annuities are financial instruments that you typically invest in now for payouts in retirement. They can be worthwhile if you’re afraid of running out of cash in your post-work years.

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“Your investments should be made based on a comprehensive plan that looks at all areas of retirement and not just solely based on your age,” said Chad Ensign, founder of Ensign Wealth Management, a financial firm.

Dhara is a reporter Yahoo Money and Cashay. Follow her on Twitter at @Dsinghx.

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