Prepare For Smaller Social Security Benefits When You Retire: Funding a Self-Directed IRA Can Help Shore Up Retirement Savings With Investments in Alternative Assets

Published on June 17, 2024

The Social Security Bill was signed by President Roosevelt in 1935 during the Great Depression. It established two types of financial safety nets for old-age security: (1) federal aid to the states to provide cash pensions to their needy aged (immediate assistance to the financially destitute elderly), and (2) a system of federal benefits for retired workers (a preventive measure to assure workers of a life income and reduce the potential of future dependency among the aged).

That was a long time ago and a lot has changed over the past 89 years. The Social Security Trust Fund is not as robust as it once was. When the legislation was signed in the 1930s, the historic grey wave of baby boomers who began retiring and/or collecting benefits in 2010 hit the program hard and continues to drain the coffers; and the number of aging beneficiaries relative to younger workers contributing to the program is out of balance, further exacerbating the situation.

Current Social Security status

An analysis by the Committee for a Responsible Federal Budget (CRFB) projects a budget shortfall of 4.9% of taxable payroll over the next 75 years. That’s a long time horizon but the steps being discussed today will affect near- and current retirees.

• The Congressional Budget Office has said that restoring the trust fund to solvency would require measures that include slowing down benefits, raising the full retirement age (as was done in 1983), or increasing taxes that fund Social Security.
• The CRFB analysis warns that benefit cuts of 20-30% are on the horizon by the early-to-mid 2030s.
• The Social Security annual trustees report said the fund will run out of reserves by 2035, at which time beneficiaries will receive only 83% of their full benefits (with further declines through 2098).

Without legislative action, lower monthly benefits lie ahead. For most middle-income Americans and even the more affluent, reduced Social Security benefits in retirement will hurt. The Center on Budget and Policy Priorities notes that about half of all seniors get at least 50% of their retirement income from Social Security, so for many, it represents far more than a retirement supplement. This is especially true as employer-sponsored pensions (defined benefit plans funded by the employer) are being phased out.

Boost your retirement savings with a self-directed IRA

As Generation X nears retirement—and even as millennials look ahead a few decades—they are right to be concerned about how healthy the Social Security fund will be when it’s their turn to collect. The lower benefits will put more financial burden on them to save more for retirement.
Funding an IRA regularly with maximum contributions every year is one way to supplement Social Security benefits. And if you are savvy about alternative assets, you can open a self-directed IRA and provide an additional boost to your retirement savings.

Self-directed IRAs (as well as self-directed health savings accounts and education savings accounts) allow account owners to include a broad array of alternative assets within their plans—with returns that are not correlated with the stock market. This enables investors to use what they already know and understand about different asset classes to build a more diverse portfolio and retirement wealth through a tax-advantaged plan.

In a self-directed IRA, investors can include real estate, private equity funding, royalties, mineral rights, precious metals, cryptocurrency, and many more nontraditional investments. Want to know more about how you take control of your future through self-direction? Watch some of our webinars, sign up for our newsletter, or schedule a complimentary educational session. Our team is also available by email at NewAccounts@NextGenerationTrust.com or by phone at 888.857.8058.