It's no secret that Social Security is in trouble.
The Social Security trust fund is projected to run dry within the next 10 years, which can be alarming. But to be clear, you'll still be able to receive about 77% of benefits you were promised, according to the latest trustees' report, so you don't have to worry about benefits going away completely.
However, no matter what the future of Social Security looks like or how many years you have until retirement, it's never too early to start exploring your retirement savings options. A Roth IRA, for example, could provide you with tax-free retirement income that can supplement your Social Security benefits.
If you're ready to get started, I've jotted down two Roth IRA moves that you should consider right now so you don't have to rely solely on Social Security.
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1. Contribute as much as possible to a Roth IRA
A Roth IRA (individual retirement account) is one of the most coveted retirement savings accounts out there. You can contribute after-tax dollars to the account today in exchange for tax-free dollars when you retire.
Let's say you build a six-figure nest egg. You'll be able to withdraw any of your money from your Roth IRA 100% tax-free after you've turned 59 1/2 and have met the requirements of the five-year rule. On top of that, the distributions from a Roth IRA won't affect your Social Security benefits.
In 2024, retirement savers who have enough earned income may put up to $7,000 in a Roth IRA (or $8,000 if you're 50 or older). But keep in mind that your maximum allowable contribution may be reduced or "phased out" if your modified adjusted gross income (MAGI) exceeds the limitation for 2024.
So if you qualify to contribute money to a 2024 Roth IRA, you may want to shoot for the maximum contribution amount this year. Here are a few tips to beef up your Roth IRA contributions:
- Create a budget so you can have a plan for your money.
- Track your spending.
- Trim unnecessary expenses.
- Funnel extra income or bonuses into your account.
- Set up recurring contributions from a checking to a Roth IRA.
You have until April 15, 2025 to contribute money to a 2024 Roth IRA so that gives you some time to get your finances together. But you don't want to wait too long to make contributions. The faster you can meet your Roth IRA contribution goals, the sooner you can invest the money in your account and work on other retirement savings goals.
2. Invest your Roth IRA contributions
Maxing out your Roth IRA can be a major retirement milestone, but you can't stop there. If you want to grow your Roth IRA balance over time and create another stream of income during retirement, you need to invest the funds in your account.
Dividend-income investing may be a great option for you if you don't want to depend on Social Security benefits alone. With dividends, you can earn an extra stream of income every month or quarter as long as the company continues to declare dividends. The income from your Roth IRA could help you pay a few bills during retirement. But to pull this off, you have to invest the money in your account and look into dividend reinvestment to give your portfolio a chance to grow faster.
Let's say a company declares a quarterly dividend of $1 per share. If the company pays dividends quarterly and you own 1,000 shares, you can expect to receive $1,000 worth of dividend income in your Roth IRA every three months. If you reinvest your dividends, you will automatically receive more shares of the company stock with your dividend income. Now your dividend income can help you produce more dividend income in your portfolio. If you need to use the money during retirement, you can shut off dividend reinvestment and withdraw the funds as needed. As long as you keep the dividend stocks in your company, you'll continue to receive dividend income when the board of director declares it.
Although Social Security benefits are not going away completely, it's hard to tell exactly how much you can expect to receive in the future. By looking into other retirement savings options, such as a Roth IRA, you can protect yourself from the risk of depending on Social Security benefits only. No matter what happens, knowing you have an extra stream of income that's tax-free during retirement can make your future plans a bit sweeter.
