May saw Medicare finances getting a boost, but the long-term outlook for Social Security did not change. This means it is still scheduled to be empty in 2033. As for Medicare, it took a two year jump in the forecast from 2024 when the hospital insurance fund would run dry to 2026.
While the Medicare report is a little healthier than it was before, neither its two year increase in length nor the unchanged status of Social Security does much to satisfy the debate about entitlement programs that contribute to government spending. The debate will get even higher when President Obama and Congress are faced with raising the debt ceiling. Another issue that they will face at that time is how the government will fund the next fiscal year. Budget blueprints have been passed by both parties in the House and Senate, but each one differs greatly when it approaches spending and taxes. In other words, we could see another battle on Capitol Hill regarding our future. In the meantime, citizens have to take measures to ensure there is retirement money available when they reach retirement age. The alternative is working well past retirement and not everyone is physically able to do that.
If you have not yet started making provisions for your retirement, now is the time to do that. Here are some ideas to help you:
1. Realize it’s not too late.
Even if you’re 40 and you have not saved much toward retirement, it is not too late. Even if you don’t retire at retirement age, the point is to retire at some point. It is, of course, better to retire sooner than later. Nonetheless, realizing it is not too late can give you the motivation you need to start socking away money now and it is best to put it away in different places so you have multiple income sources after retirement.
2. Don’t bank on Social Security
You receive a statement every year outlining how much money you would receive each month if you were to become disabled or if you were to retire. Look at that dollar amount you would receive per month and figure out how much more you would need per month to survive. If that amount is $700 now, you know that amount will increase throughout your working life. Again, don’t count on it. Look at how much money you will need to live on. If you need $2,000 per month, then you will have to save $480,000 between now and when you hope to retire to live on that. Still, that is not a significant amount of money.
3. Employer matched retirement plans
To make up the difference between savings and what you need to live comfortably, employer matched retirement plans, such as IRAs and 401(k) plans, can be perfect. As long as you don’t cash out these accounts prematurely, they will most likely continue to grow. There is some risk involved, but the accounts can create one or more income streams for you. Even if your employer does not offer such plans, there are financial institutions that offer them.
There are several different types of investments you can put your money into. While you still need to save money and place money in IRAs and 401(k) plans, you can take some money you save and invest it. This is where you may take a risk and it is something that a lot of individuals do closer to retirement so they still have enough of a nest egg to ensure they do not do too much damage. When an investment, such as an investment in specific stocks or mutual funds sees high returns, then you have automatically created more income for yourself. It is good to work with a brokerage in this case so you can diversify your portfolio so that gains will hedge any losses from other investments.
You may even want to consider real estate investing. Once you save enough money or can obtain a bank loan for a property that you can flip, it can be easy to make a $20,000 profit on a piece of property when you resell it. As long as you plan accordingly and make sure you research the best ways to get quality work done for less money, this can be an excellent income opportunity for you.
Lastly, you can purchase property to rent. There is a lot of responsibility that comes with rental property, but you can easily create monthly income through rent payments. When the property is kept in good repair, you normally do not have to worry about it being vacant for long.
5. Pay your mortgage
This should be the last place you turn when you need income. However, you build home equity as you pay your mortgage. This means if an emergency comes about that you need money, you can refinance your mortgage and use the equity to help you pay your bills.
When you are at least 62 years of age and you own your home free and clear, you may qualify for a reverse mortgage. This is a loan on your home that you do not have to pay back as long as you use the home as your primary residence. The maximum loan amount depends on age, the current interest rate, the home’s appraised value, and government imposed lending limits. You can then receive the money in a lump sun, equal monthly payments while living in the home, equal monthly payments for a certain number of years, a line of credit, or a combination of any of these. In the case of your death, you estate can pay back the loan or the home can be put up for sale. If the home equity is higher than the loan amount, the remaining equity goes toward the estate.
All of these are ways that you can produce an income for yourself after retirement. That way you can retire comfortably even in the absence of Social Security. At this point, it is just better for you to assume that the Social Security trust fund will be completely dry. Even with a projection of 2033, it could very well run out sooner than that. If by some chance it is there when you retire, it may be for a few years or it is always possible the government is able to figure out a way to keep it around even longer. Either way, look at any money you receive from Social Security as an added bonus rather than a way to pay your living expenses.