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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Its running out because all of the surplus that has been put in over the years has been "borrowed" for other purposes and never returned..If all the money collected was left alone there wouldn't be a shortage at all. Just another way the government misleads the public .
Both of my parents payed into social security for 35 years and both of them passed away just before either one of them could collect any. They had upper middle class jobs so they payed a decent amount. And so where did there money go? Into the pot to pay the slackers and the politicans?
The Government has stolen the hard earned FICA contributions of both employees and their employers who placed that money 'in trust' for their future retirement. Now when it is time to begin 'paying back' we are supposed to believe that there are simply 'too many' people for the system to support, thus benefits must be cut.
So much for 'trusting' the U. S Government, most people would go to prison for such thievery.
...So to summarize: Keep working and spend less. ...Guess thats the new American dream. Work some crappy stress filled job until all the life is sucked out of you. Well my answer to that is NO.
Started drawing mine last year at age 62, after paying in for 40 years....
I might have waited longer..BUT..I no longer trust Our Government to keep their hands
out of the money....Government IOUs ain't worth a damn..!
Have been told too many LIES from Our government and president to trust ANY of them....
For those of us who have paid into the system, the government OWES us...
You better demand some change now, not later. Even if, and when it runs out of money, do you think you won't pay the same amount to the govt. out of your check? Now, that's a pretty heft tax hike....
Here's a idea.
Instead of having your SS deductions going to the government, have them deposited into a 'required' retirement account. Not a IRA but something that the government can't use as a 'slush fund'. All deductions from your paychecks would remain in place but YOUR account would be YOURS, not the governments.
This is very close to 'privatizing' the program but I don't see too many other options if the American people want to save Social Security for their own retirement.
And those who don't work, even though they're able, to contribute ? S-O-L !!
“Well, the truth is...ah, shoot, well; we all know there's Washington's math problem. Alan Sloan in recent Newsweek says he spends 150%. What we've been doing, Mr. Chairman, in all reality, is taken a hundred billion out of the Social Security Trust Fund, transferring it over to the spending column, and spending it. Our friends to the left here are getting their tax cuts, we getting our spending increases, and hollering surplus, surplus, and balanced budget, and balanced budget plans when we continue to spend a hundred billion more than we take in.
That's the reality, and I think that you and I, working the same side of the street now, can have a little bit of success by bringing to everybody's attention this is all intended surplus. In other words, when we passed the Greenspan Commission Report, the Greenspan Commission Report only had Social Security in 1983 a two hundred million surplus. It's projected to have this year a 117 million surplus. I've got the schedule; I'll ask to put in the record the CBO report: 117, 126, 130, 100, going right through to 2008 over the ten year period of 186 billion surplus. That was intended; this is dramatic about all these retirees, the baby boomers. But we foresaw that baby boomer problem; we planned against that baby boomer problem. Our problem is we've been spending that particular reserve, that set-aside that you testify to that is so necessary. That's what I'm trying to get this government back to reality, if we can do that.
We owe Social Security 736 billion right this minute. If we saved 117 billion, we could pay that debt down, and have the wonderful effect on the capital markets and savings rate. Isn't that correct? Thank you very much, Sir. Thank you, Mr. Chairman.”
The above explains how the lack of control takes advantage of the federal money. As of 2013 the federal government owes 2.6 trillion dollars to the Old Age and Survivors Insurance trust fund (Social Security) plus an additional 140 billion dollars for the disability trust fund. Here is the kicker; Congress keeps bringing up the possibility of an increase in Social Security because the fund is running out of money. The joke is on the elderly and the ignorant that put idiots in Congress as representatives.
Then theres this... not all the ideas in toyland can fix stupid, what do you get when you put 100 smart people in the same room? any takers... i'll tell you, you get a bunch of idiots called Congress
"but many financial planners advocate putting away from 10% to 20%. The more you can save, the better, Mitchell advises."
But aren't we paying in 71/2%, and our employer matching into this fraud called Social Security out of our wages already? And you have the audacity to say we need to save more because what we paid in won't be there? Shouldn't people be in jail for robbing us?
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