9/19/2013 11:45 PM ET|
Will Social Security be gone when you retire?
Most people agree that the Social Security program needs to be adjusted. But not everyone agrees on the next steps.
Social Security benefits used to be something all tax-paying workers could count on. A portion of your pay would be deducted automatically from your paycheck, through the payroll tax, and in return, you would reap the benefits of the program when it came time for you to retire.
For many decades, the program worked well. “Today’s employees would raise the revenue to pay current retirees, and were assured that when their time to retire came, the current employees of the day would pay into the system to finance their retirement,” explained Olivia S. Mitchell, the director of the Pension Research Council at the Wharton School of the University of Pennsylvania.
Why is Social Security running out?
But due to the recent financial crisis and recession, as well as the current high unemployment rate and the size of the aging baby boomer population, many of whom are expected to live far past age 65, there may eventually be insufficient money coming in from payroll tax revenue to pay out full Social Security benefits. This has many people worried about the overall future of the system and whether Social Security will be there for them when it’s their turn to retire.
For Social Security to continue to exist as it does today, Congress must figure out a way to shore up the expected deficit in the program. Otherwise, it will have to resort to paying out reduced benefits.
Instead of relying on Social Security as a way to support their retirement, people may have to depend on their own savings and investments, says Ellen Derrick, a certified financial planner for LearnVest Planning Services. “People need to ask themselves: ‘What can I do now to make sure I am protecting myself for the future, a future that may not include Social Security?’” she says.
According to forecasts made by the Social Security Board of Trustees, there should be enough money coming into the program to pay out only about three-quarters of total expected benefits starting in the year 2032. “So if you were to receive $1,000 a month, it is projected that you would only receive $750 a month instead,” says Derrick. “Those benefits should be intact through the year 2086,” she notes.
Part of the reason this may occur: “The law says that the Social Security administration can only pay benefits up to the amount of revenue that it has, so if it’s insufficient, the government will have to figure out new solutions if it does not want to cut payments,” explains Mitchell. And that will take policy changes.
How you can prepare yourself
So what can you do now to prepare yourself for the possibility that the full amount of Social Security benefits won’t be there when it’s your time to retire?
The simplest answer is to keep working. If you're already retired or close to retiring, you don’t need to worry; your benefits are secured. “But if you’re 10 years away from retirement, it’s time to buckle down,” says Derrick. She tells her clients who are age 55 and younger that they should not even include Social Security in their retirement planning calculations. “If you do get it, it will most likely be a smaller amount than what you are currently being promised,” she says.
Many financial planners are advising people to keep working and retire later than they may have originally planned. “It’s helpful to delay retirement until as late as possible,” says Mitchell. In fact, there are already added benefits built into the Social Security system if you defer claiming benefits until age 70 instead of taking them at 62, the earliest available age. “Your monthly benefit could go up by as much as 76%,” she says. It is important to realize that the age you take your Social Security benefit can vary from person to person. This is a topic you should discuss with your financial professional to figure out what time is right for you.
How much you’ll need to save
Mitchell also recommends that people start saving more while they are still working, and that they spend less. The recommended percentage of one’s paycheck that people should invest in a retirement fund varies greatly according to age and circumstances, but many financial planners advocate putting away from 10% to 20%. The more you can save, the better, Mitchell advises. Another factor is that many people are living a lot longer than they used to. “Longevity is increasing, and it is expected that people may soon start living to over 100,” she notes. That means many more years of savings will be needed.
Another tip: Everyone who is offered a 401k retirement plan from his or her employer with a contribution-matching program should take it. The match is free money! If you’re self-employed, setting up a traditional individual retirement account, Roth IRA or individual 401k account is key. If possible, you should contribute the maximum amount those plans allow each year. “Even if you are a stay-at-home mom, you can set up an IRA in your name and deposit income coming in from your spouse,” Derrick advises.
What else you can do to stay on track
Staying healthy is another way to protect yourself now for later on in life. “You should be investing in your mental and physical health, because that is your capital,” Mitchell says. Good health will help allow you to work longer and hopefully reduce medical expenses when you are in your retirement years.
She also suggests that people start to think about their social capital, which includes friends, neighbors, community and family. “In the old days, when parents would grow old, they would move in with their kids, but that has changed,” Mitchell says. Today, if you have friends and family who can help you, it may allow you to remain out of a nursing home and in your own home longer, which will be less expensive later in life, she explains.
Continuing to work part time, even in retirement, is another good idea. “People who work part time remain mentally alert and connected to friends. It is another aspect of successful aging,” she says.
Derrick also recommends that workers check their retirement plan at least once a year to see if it remains on track. “If it’s not, you should adjust your contributions, especially if you get a raise or a new job that could make a significant difference in your salary,” she says. At times, you may find that you have to rearrange your savings rate to take care of a child’s needs or to set up a college fund. “But at the same time, you don’t want to sacrifice your own retirement; you want to weigh those priorities,” says Derrick.
The earlier you start saving for your retirement, the better, even if it’s a just small amount at first. “People come up with all sorts of reasons to put off saving for their retirement, but retirement is the one thing you can make the biggest difference with if you start saving early on,” Derrick notes. That’s because the earlier you start, the more time you have to let your money grow.
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Started drawing mine already..at 62 and as soon as I could...
I don't trust Our Government with My money..Their IOUs ain't worth nothing...
Ive been LIED to so many times by our government and president...
They can No Longer be trusted...
if the government can spend money that they don't have on war; they can also spend money they don't have on taking care of their people. Why is it that DC only has $$ problems when it comes to taking care of their people but when it comes to war there is an endless amount of money that can be spent.
Why is Social Security running out?
How about all of the SSI disability, how about numerous people collecting and THYE haven't paid in one cent?
No it will never be gone, unless you give us all 30-50 years of no forced SS Tax it is that simple, or the government will be arrested for fraud, and there will be a major civil war in these USA!
I have paid 1,260,000 in SS and Medicare taxes adjusted for inflation and Fed interest charged to banks--obviously the US government has stolen my money by force, so they are always going to pay it back, or else-- I guess that is why so many people demand to own guns, because they have seen how USA cheat people before, like starting with our "hero" Veterans--They are apparently only "heroes" while they are fighting--never mind illness physical or mental--what a disgrace!--Like we just have seen in Washington!
It is running out because of gross mismanagement by our elected officals. They vote to hand benefits out to everyone regardless of if they have paid into it or are even a citizen.
I will sue to have them return the money I paid into it rgardless if they run out or not.
One more article on how to survive another screw job brought about by the inadequacy of our elected officials.
SS is now being distributed in so many different ways it was never intended, it can not possibly stay solvent for much longer. Couple that with the problems mentioned in the article, it is doomed. This government will never agree on a logical or fair plan that could save it or give it a decent burial. Both parties will just keep using its headline making problems against each other. All the while taking the money out as they need by whatever means they can. It is really very sad that all of America knows what is happening and can not stop it.
Government needs to quit giving ss funds to people who never put in a dime. illegal's and
Congress has been looting the country for years and years. Social Security has plenty of money. These jerks / Congress have make sure that the super rich and the Big Corporations have not paid taxes in over 13 years. Congress and their evil owners figure we will loot the country on the behalf of Billionaires and Big Corporations.
Congress and their evil owners Billionaires and corporations that have not paid taxes need to be arrested on racketeering and Treason. Congress has sold out the 99% so that the evil rich get even richer while the Middle Class and poor suffer because of their evilness. 5 Years after Lehman went down the rich are richer and the corporations are make greedyb record profits. The Middle Class is dead and Congress is soooo proud of their efforts! A bunch of criminals run this country.
Term limits and publically paid elections. Throw all of the criminal bums out of Congress. They have destroyed the country ad middle class. Enough!!!!!
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