No employer, no pension, no excuses

A few weeks back, we discussed a study about the amount of money retirees spend on grandchildren. A response to that column asked for more information about retirement for the self-employed who have not paid into Social Security.

We should start with a reminder for everyone, self-employed or not, that on average, Social Security provides about one-third of retirement income. For many Americans, however, it is far more than a supplement. A 2022 Pew study found that Social Security accounted for at least half of total personal income for 63.2 percent of adult recipients, while 43.6 percent received at least three-quarters of their income from Federal retirement payments. More striking still, 27 percent relied on Social Security as their only source of income.

Yet another Pew study found that self-employed workers, especially those in single-person firms, participate in workplace retirement plans at much lower rates than traditional employees. One of the biggest retirement pitfalls for the self-employed is underreporting income or neglecting to pay self-employment taxes. While this might reduce the immediate tax bill, it carries long-term consequences by shrinking—or even eliminating—future Social Security benefits.

Without sufficient credits built up over a working lifetime, a self-employed person may find that the one steady income stream most retirees rely upon is either sharply reduced or out of reach altogether. Professionals emphasize that paying into Social Security through self-employment taxes is not just a legal obligation but also an essential form of retirement insurance.

For self-employed workers in particular, professional advice usually focuses on building intentional savings through tax-advantaged accounts and disciplined planning. Without access to employer pensions or matching 401(k) contributions, they must essentially act as both employer and employee, creating their own safety net. They also recommend automating contributions to mimic the payroll deductions traditional workers take for granted, and diversifying retirement resources rather than assuming the eventual sale of a business will suffice.

The overall message is clear: don’t rely solely on Social Security, and don’t pin your hopes entirely on a business exit. True security comes from consistent saving, tax planning, and the same kind of discipline found in traditional workplace retirement systems.

For those in their 50s or 60s who find their savings behind, the IRS offers “catch-up” opportunities. At age 50, higher contribution limits apply to IRAs and 401(k)-type plans, and couples can often double that by each contributing. At 55, extra funds can go into Health Savings Accounts, which roll over and provide tax-free withdrawals for medical costs. Others may gain ground simply by working longer or delaying Social Security, which increases monthly benefits.

Some of us go further and argue that the answer lies in privatization. Let’s set aside political banter about Social Security “going away.” The US will always provide a minimal safety net, but for those fortunate enough to work, we can manage retirement savings more effectively than a government that juggles competing priorities.

Ultimately, every working person must recognize that no one has a greater stake in their retirement than they do themselves. Unlike government, which divides its attention among countless priorities, each of us has only one retirement to plan for—our own. The good news is that many qualified advisors are available right here in and around McCook, and their services can be found in the advertisements throughout this newspaper.