No Social Security? Here Are 3 Ways To Ensure Financial Security In Retirement

Social Security has been around since 1935 and is singularly responsible for lifting millions of people out of poverty. While there is a lot to know about Social Security and how it works (including the fact it comprised 22% of the federal government's budget in 2023), older Americans who have worked steadily for at least 10 years are almost certainly entitled to a monthly Social Security check when they reach retirement age. These benefits average out to replace roughly 40% of the typical American's pre-retirement income. However, Social Security is facing the possibility of running out, with the Social Security and Medicare Boards of Trustees noting that the combined Old-Age and Survivors Insurance and Disability Insurance funds are set to run out of reserve cash in 2035 (if nothing is done to prevent it). This will result in an estimated drop in benefit payout rates of nearly 20%. 

However, not everyone is entitled to Social Security benefits in the first place. Specifically, those who haven't earned the requisite credits (essentially equating to 10 years of regular work) do not receive Social Security checks when they reach retirement age. Whether you're in this position and looking for ways to support yourself later in life or are worried about the prospect of the proposed benefits rate cut, looking for alternatives to Social Security benefits can be crucially important. Here are a few options to explore if you anticipate little to no support from monthly Social Security checks.

Experts suggest that retirees need roughly 70% to 80% of their pre-retirement income to maintain their lifestyle once they leave the workforce. According to the Bureau of Labor Statistics, the average earner in the U.S. makes roughly $65,000 per year ($5,416 per month). In retirement, you'd therefore need to maintain between $3,791 and $4,333 in monthly retirement income to keep pace with your lifestyle expectations. Retirees banking on Social Security checks today can cut this figure roughly in half, making the monthly amount they need to contribute from other sources somewhere in the neighborhood of $2,000. However, those anticipating no Social Security income could have a harder time. The first thing to do is explore your budget to potentially cut out additional spending items and identify financial obligations that could balloon in retirement.

Understanding how much you will need in retirement will set you up for success. It's important to realize that not everyone will be able to match their financial needs with successful investments alone. Whether through a lack of time (remember that starting your savings journey early to take advantage of compound interest can be your greatest ally when planning for retirement) or poor luck with one or more investments in the past, you may have to live with the reality of a somewhat shrunken budget. While cutting spending can be difficult, it's also the most direct way to improve your finances with haste and efficiency.

Once you've explored your financial needs and abilities, you're almost certainly going to begin looking for ways to bridge the gap between what you currently have and what you require. An annuity can be a solid option that provides guaranteed retirement income to service those demands. Annuities are an insurance product that function similarly to life insurance, but the payout schedule begins while you're still alive rather than as a benefit for those you leave behind. Annuities can come in many forms, and act as an income replacement tool much like Social Security benefits. 

When you purchase an annuity, you pay a certain amount into your contract –- either in one lump sum or through monthly premiums for a specified amount of time. Then, you can begin drawing monthly annuity checks once this accumulation phase is complete. Like a life insurance policy, you can specify a range of payment structures and decide on the specific terms that might provide a complete or partial replacement value for your pre-retirement income. Buying into an annuity delivers a guaranteed retirement cash flow that takes the guess work and management obligations out of the equation. If you need a certain amount of money every month, perhaps the roughly $4,300 mentioned previously, purchasing an annuity that covers that need or gets you the rest of the way there can act as a direct replacement for the Social Security checks you may have otherwise relied on.

If you're an investor who wants to put your stamp on things, investing in high-yield assets of your own choosing is generally going to be more valuable than buying into an annuity policy. Investing in dividend producers can be a great option for those looking to deliver consistent cash out availability without eating into the principal value of their portfolio. Since selling off assets limits the growth potential of your money, the more you sell to fund your existing lifestyle, the less capital you have working for you to deliver financial stability in the future. This is where dividends come into play. Instead of selling an asset to extract cash from the position, companies pay shareholders a cash dividend on a monthly, quarterly, or yearly basis. A comprehensive dividend strategy can go a long way to giving you the retirement income you need without sacrificing the positions you've invested in.

Another option is to invest in real estate. A rental property can deliver regular monthly payments that are similar in function to dividends. Some of this income will need to be held to service the asset (like for repairs and for annual tax liabilities), but most of the rental income a property generates can go right into your pocket. Average rental prices in the U.S. currently stand at $1,748, according to RentCafe. Compared to the average monthly Social Security check – $1,907 as of January 2024 — an investment in real estate might act as a near-total replacement for Social Security benefits.