Jan 14, 2025
Many Americans are heavily reliant — even solely reliant — on their Social Security benefit to get by in retirement.
More than half of non-retired Americans (53%) expect to rely on their benefit to “pay their necessary expenses once they retire,” according to a recent survey. This includes 28% of Americans who expect to be “very reliant.” Of those already retired, 77% say they rely on Social Security for necessary expenses.
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President-elect Donald Trump has promised to protect Social Security, but he’s also floated the idea of cutting taxes on Social Security benefits. This means baby boomers could get a bump in the short term, but experts predict this would hasten its insolvency.
Already, the Social Security trust funds are expected to run short of cash in 2035 if something isn’t done about it, according to projections from a May 2024 federal report. While running short of cash wouldn’t eliminate Social Security altogether, benefits would reduce by 17%. The recently passed Social Security Fairness Act, which expanded Social Security, is also going to have a financial impact on the trust funds.
So, no matter what happens (or doesn’t happen), it may be a good time to take control of the reins for your retirement.
Here are three money moves you can consider that will possibly provide more financial stability in retirement and reduce your reliance on Social Security.
1. Contribute to an HSA
Even with Medicare, retired Americans can expect to spend a chunk of money on healthcare throughout their golden years. Medicare doesn’t cover premiums or deductibles and other out-of-pocket costs, nor does it cover long-term care.
For example, a 65 year old retiring in 2024 can expect to spend an average of $165,000 in health care and medical expenses throughout retirement, according to Fidelity’s annual Retiree Health Care Cost Estimate. Unfortunately, Fidelity research found the average American estimates these costs will be about $75,000 — less than half the amount it calculated.
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If you’re relying on Social Security to get by, unexpected medical costs could leave you stretched thin. One way to save for these additional costs in retirement is to enroll in an eligible High Deductible Health Plan (HDHP) and open a Health Savings Account (HSA).
An HSA has three big tax benefits: contributions are tax-deductible, the money can be spent tax-free for qualifying healthcare expenses and any investment growth in your account is tax-free.
You cannot contribute to your HSA once you enroll in Medicare at age 65, so you may want to max out contributions to your HSA until then.
“While your HSA can't pay your premiums, it exists as an emergency fund for health care, and maxing it out can leave you better prepared for large out-of-pocket medical bills,” says Experian author Emily Starbuck Gerson. “There is a risk of saving more than you need, and later wanting that money for other purposes. You can't withdraw that money penalty-free until after age 65, and even then, you'll still owe taxes on non-qualified expenses.”
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2. Max out your retirement savings
Some financial experts like founder of Financial Samurai Sam Dogen say you should aim to max out your tax-advantaged retirement vehicles. “Hopefully, it’s something that becomes automatic, and you’re not going to touch it until you’re 59½,” he said to CNBC. This will help you set yourself up for a comfortable retirement.
However, as Ramsey Solutions points out, you should avoid doing this if you’re still getting out of debt, don’t have money saved for emergencies or are saving up for other financial goals.
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Only 69% of private-sector workers had access to an employer-sponsored retirement plan as of 2022, according to the U.S. Bureau of Labor Statistics. For those who don’t have a workplace plan such as a 401(k), there are other options available to help you save.
For example, an individual retirement account (IRA) is a tax-advantaged savings account that can help you save for retirement. With a traditional IRA, contributions are tax-deductible; you pay taxes upon withdrawal (ideally when you’re in a lower tax bracket). With a Roth IRA, you pay the taxes upfront, but investment growth and withdrawals are tax-free once you reach age 59½. For 2025, the contribution limit is capped at $7,000 (or, if you’re 50+, at $8,000), and you have until Tax Day in April to top it up.
3. Capitalize on lower taxes — while you still can
In 2017, the Trump Administration passed the Tax Cuts and Jobs Act (TCJA). While this law is complex, it essentially provided for a number of tax breaks and deductions, many of which are scheduled to sunset in 2025. Trump has said he plans to extend these tax cuts, but that's not a sure thing.
In the meantime, it may make sense for you to convert a tax-deferred retirement account into a Roth IRA (where you pay the taxes upfront) if you expect the tax rate on the converted amount to be higher in the future.
“One reason to consider a Roth conversion this year or next: Without further action from Congress, tax rates are set to rise with the sunsetting of the 2017 Tax Cuts and Jobs Act at the end of 2025,” said Fidelity last month. “Although the new administration and many Congressional Republicans support an extension of the current lower tax rates, record debt and deficits could complicate a full extension. In the meantime, a Roth conversion at current lower rates could reduce taxes on the conversion, and allow for qualified distributions in retirement that are tax-free.”
This should be done over time so you don’t end up getting bumped into a higher tax bracket. Whether this strategy is right for you depends on your financial situation. So it’s worth talking to a financial adviser about your options for capitalizing on lower taxes.
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Vawn Himmelsbach is a veteran journalist who has been covering tech, business, finance and travel for the past three decades. Her work has been featured in publications such as The Globe and Mail, Toronto Star, National Post, Metro News, Canadian Geographic, Zoomer, CAA Magazine, Travelweek, Explore Magazine, Flare and Consumer Reports, to name a few.
