5 Social Security Alternatives Gen Z Can Lock In on Now
One of the two sources used to fund Social Security payments and benefits for roughly 70 million Americans – the Old-Age and Survivors Insurance Trust Fund – is expected to be fully depleted by 2032. That will lead to a 28% cut in Social Security benefits, and it is expected to hasten Social Security’s overall depletion throughout the 2030s.
This should be of serious concern to Gen Z, the generation of Americans born between 1997 and 2012 who are expected to begin retiring by 2056. With no current political solutions to the Social Security problem on the horizon, it’s up to Gen Zers to find retirement savings alternatives that can be locked in now. Below are just few worth considering.
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Set Up a 401(k) or IRA Immediately
“Start building your own income streams early,” Alex Langan, chief investment officer of Langan Financial, told MoneyLion.
For many of the younger workers in Gen Z, that means setting up automatic contributions to a 401(k) account or individual retirement account (IRA) right away. “Index funds are one option; you're basically buying a slice of the whole market instead of trying to pick winners. The advantage when you're in your 20s isn't how much you save. It's how long that money has to grow.”
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Diversify Your Income
Jarad Stolz, vice president of insurance sales and associate chief underwriter at Diversified Insurance Brokers, said diversifying income sources is a key to Gen Z’s retirement success.
He suggested a mix of “retirement accounts offered through employers, individual accounts and even fixed bonus annuities to help [the investor] from losses.” He made clear that “the goal is to not only grow [the accounts], but to use them as income later on.”
Take Advantage of Freelancing
As an adjunct to your day job, Gen Z can take advantage of freelancing options to build a retirement savings account.
“Younger workers also have options previous generations didn't," Langan said. "You can build side income through freelance work, consulting or a business you start on the side.
“Real estate might make sense for some. The point is having multiple ways money can come in later; not just one paycheck or one government check. Just be careful if you start a business on the side; every business has its risks.”
Utilize Health Savings Accounts
A smart option for Gen Zers is to utilize health savings accounts (HSAs) as a hidden retirement account.
As Yehuda Tropper, CEO of Beca Life Settlements, explained, members of Gen Z can “invest your HSA contributions in low-cost index funds and pay all current medical expenses out of pocket so that the funds accumulate tax-free. At age 65 or later, you can take it out penalty-free for any reason and only pay ordinary income tax.”
Take Advantage of Gen Z’s Biggest Asset: Time
One thing Gen Z has that older generations do not? More time.
As Langan put it, “Someone who starts putting away $100 a month at 25 could end up with double what someone has if they wait until 35 -- even saving the exact same amount. That's just time doing the work.”
Don’t wait until your late 30s or 40s before saving -- start young, start early, while you still have the most time.
Additionally, Langan reminded: “The goal isn't to replace Social Security. It's to build something that works whether the system changes or not.”
The best way to do that is start early, when time isn’t working against you.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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