‘Social Security is broke beyond belief’: Economist says the US retirement safety net is full of holes — how to protect yourself and secure your golden years

Beware the bait and switch

The Brink article lists lists five tips for retirement savings, including plan within your means, maximize benefit matches, save in addition to your retirement program, use planning tools, and wait longer to collect Social Security benefits.

“Even after Social Security contributions, and after 401(k) contributions, they should probably be saving another 15% of their take-home pay, which is very tough,” Kotlikoff says. He noted that perhaps 40% of those eligible for a 401(k) don’t take advantage. “Most people are saving nothing.”

He added that everyone who expects to "sustain their living standard through retirement" needs to do economics-based financial planning because "conventional planning is an elaborate bait and switch designed to sell you investment products that are highly expensive and overly risky."

He describes the economics-based approach as determining a sustainable living standard based on your resources, and adjusting your spending as your circumstances change, so you don’t outlive your savings.

Given that Social Security is, in Kotlikoff’s words, “broke beyond belief,” it’s worth exploring other options. It could be a good idea to consult a financial planner to determine which options are best for you.

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Secure your finances with retirement accounts

A good place to start with retirement planning is a 401(k), if your employer offers one. Many employers will match your contributions so, for example, if you contribute 3% from each paycheck, they’ll also contribute 3%. This can greatly increase the amount you save each month, so it’s worth contributing up to the maximum your employer will match.

It also makes it easy to save, since you typically contribute through automatic withdrawals from your paycheck. So you don’t have to think about it — and you won’t be tempted to spend that money elsewhere.

Since the 401(k) is a pre-tax account, your contributions don’t count as taxable income when they’re made — another bonus, especially if you’re in a high tax bracket. Instead, they’re taxed upon withdrawal. This works out well for many retirees, since your tax bracket in retirement is often lower than during your working years.

You could also consider opening a traditional individual retirement account (IRA), which is also a pre-tax investment account. Most standard investments, such as stocks, bonds, mutual funds and ETFs, are allowed, and the gains on these investments will be tax-free.

A Roth IRA is an after-tax account, which means your contributions are taxed up front. But they grow tax-free and, after age 59.5, you can withdraw your contributions tax-free and penalty-free at any time — so long as the account has been open for at least five years. Unlike a 401(k) or traditional IRA, there are no required distributions so you can keep the entire account until later in retirement. Or, after death, you can pass it on to your beneficiaries tax-free.

The combined contribution limit for your traditional and Roth IRA accounts in 2024 is $7,000 for individuals under 50 and $8,000 if you’re 50 or older. However, if you’re single and earn more than $161,000 in 2024 or married and jointly earn $240,000, you can’t contribute to a Roth IRA.