It’s no wonder projections show Social Security funds will be nearly drained by 2034 — the system was never designed to support longer life spans, a smaller work force and stagnant wages being strained with a higher cost of living. Social security favors its earliest users in terms of benefits yet structurally was never designed to be more than a supplemental source of income at retirement.
Yet even by today’s standards, the benefits a retiree receives now will likely far exceed what Millennials are expected to get by the time they retire. Why? Because with less people in the workforce and economic downturns, payroll sources will no longer be able to keep up with benefit demands.
Thankfully, Millennials are skeptics when it comes to receiving full social security benefits. According to a Wells Fargo 2019 annual retirement study, only 13% of millennials expect to rely on Social Security as their primary source of income during retirement.
How can they use that cynicism to develop a retirement savings strategy now?
"In the realm of retirement planning, millennials should think of social security as their Plan D,” advises Lyle Himebaugh of Granite Group Advisors. “Saving now for the long term, understanding tax implications and getting sound investment advice is your best Plan A, B and C,” he adds.
On the savings front, Himebaugh recommends a good rule of thumb is ideally contributing 15% of income annually to retirement accounts. He adds that if that percentage of income is at odds with a cost of living, even making smaller contributions to a company 401k plan can make a difference in the long term. Companies often match up to a certain percentage of contributions — be sure not to leave free money on the table and at a minimum make tax-free contributions up to the company match. Another alternative is to make use of Roth IRA in which after tax dollars are contributed so your money can grow with tax-free disbursements at retirement. Himebaugh suggests this is good at the start of your career when income levels are typically lower and taxed less. An accountant can be your best source to help you understand the tax implications of each retirement plan to ensure it is aligned with your income.
Working with many employers and employees to manage 401k plans as an investment fiduciary, Himebaugh shares the biggest deficit to any retirement plan is the lack of financial education. Millennials may consider themselves savvy investors in the moment however saving for retirement requires an upfront plan, consistent monitoring and a long-term view. Himebaugh suggests millennials take the time to partner with an investment advisor who specializes in retirement planning and can guide an employee at any point in their career towards making the right investment decisions.
“Educating yourself and speaking often to an investment advisor is a life-long process," concludes Himebaugh. “The reward for this effort is a plan that will provide you the peace of mind for a financially stress-free retirement.”
What retirement plan is best for you? Whether you are an employer, financial advisor or an employee, GGA is here to help you and advocate for your financial wellness. Give us a call at (203) 210-7814 or click the Learn More button.