Will Your Social Security Be All You Need When You Retire?
In your parents’ day, most people who were about to retire could plan on getting about half of their retirement income from Social Security. That time has past. Anyone who’s retiring after the Baby Boomers can expect 25% or less of their retirement income to come from Social Security. That’s a lot to think about when you think about money and wonder how much to retire upon.
The first thing you need to do when you start thinking about how to support yourself in retirement is to ascertain how much money you’re likely to be getting from your Social Security benefit and from other sources of income. How much you need to save now is largely dependent upon how much you think you’ll receive from sources other than savings once you retire.
If you plan to be frugal in retirement – perhaps you plan to live on just what you’ll be getting from Social Security and from your pension – then you won’t need to worry about savings. If you’re hoping to live large during retirement and plan on having a lot to live on, you need to start socking away a lot of money ASAP. What you need to save is the difference between what you’ll be getting between your Social Security and pension and what you hope to have, monetarily speaking.
Basically, there is no monetary fund that backs up Social Security payments. Whatever is paid in by young, working folks is then given to retirees as Social Security benefits. Using information from the Social Security Administration Website, money it once took deductions from 16 paychecks to pay for the Social Security Social Security benefits of one retired person. Today that ratio is down to about three workers per retiree. Forty years from now the Social Security deduction from two workers paychecks will fund one retiree’s benefit. That is simply not enough money to maintain today’s schedule of benefits unless there’s a tax increase.
Today, whatever extra Social Security revenue that comes out of paychecks is put into Treasury bonds. Studies show that, if things are left as they are now, that by 2041 there will no longer be any extra revenue, the Treasury bonds will be used up, and Social Security will only have enough funding to pay 78% of benefits that are scheduled. This means that if you were 35 by 2007, that by 2041 you’re going to see a decrease in Social Security benefits of about 22%. And there will be more reductions every year after that.
Social Security Has Changed
Those who were born before 1938 could start collecting full benefits when they reached 65. Those who were born after 1960 will not be able to collect full benefits until they reach the age of 67. For those born between 1938 and 1960, there are gradual changes in the age at which retirees can begin collecting full benefits. Benefits can be drawn at the age of 62 but those benefits are reduced as retirees are not considered to be of full retirement age by the SSA at 62. Those who wait until their full retirement age to begin getting benefits, and live quite a bit longer than Social Security predicts that they’ll live, may, in the long run, make out better than those who begin getting Social Security at 62.
What can the government do as the number of workers who have Social Security deducted from their paycheck, in comparison to the number of retirees whose Social Security benefits are funded by these deductions, decreases? Taxes can be raised. Social Security can be made harder to obtain.
No matter what the government does, the outlook is grim. Workers today must begin working towards a secure future by saving more, and looking for a job that offers a pension or an employer sponsored 401(k). Future retirees should not depend solely on the Social Security benefits they’re hoping to get to support themselves in retirement.
Before you get to work with online financial calculators, get out the statement that’s sent to you yearly by the SSA and see how much the SSA is saying that you can expect to receive when you beginning drawing your Social Security benefits. There is also a SSA website at www.ssa.gov. The telephone number of the SSA is 800-772-1213. But no matter what your statement says, don’t plan on the benefits on the schedule after 2041.
If You Can’t Rely on your Social Security Benefits What Can You Do?
• Stay in the workforce longer: If you work an extra few years you’ll see an increase in your Social Security benefits. If you’re still at work, you should also be able to continue saving money which should continue to garner interest.
• Put away more money: You will probably need to save more money than you had expected to save. And more money means more interest on your savings.
• Take up a healthy lifestyle: Diet and exercise, along with a lower stress lifestyle and better sleep habits, may increase your life expectancy, giving you more time to enjoy your retirement years. As an added bonus, your healthier lifestyle may lower doctor and prescription bills.
• Look for good health insurance: Medical bills can take a huge chunk out of savings. In the event that you need long-term care, that too can quickly deplete savings.
Social Security may not provide you with all of the money that you had hoped it would, but there are other options. Begin the steps above today and you’ll be building one of the best retirement plans around!
About the author:
A big fan of money, Jason Munroe started a savings account at the tender age of 13! He enjoys spending his time working on the Internet when he isn’t spending time with his wife and two grown children who live with him in Nevada. Jason is retired and enjoys travel.
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