Social Security is running out. But perhaps it should be discussed even more, as the latest report from the Social Security Board of Trustees implies, as of yet, little is being done to reverse its fate.
In line with last year’s projection, the Board foresees full funding for the 83-year-old program to only last until 2034. At that time, 79 percent of benefits are expected to remain payable—a trivial boost from last year’s estimate of 77 percent.
What’s worse, the total annual cost of the program will likely exceed its income in 2018—and it’s anticipated that this trend will persist year-after-year. To make up for the shortfall, the program will need to dip into its reserves for the first time since 1982.
“People are living longer than any time in history and birthrates are declining. This phenomenon known as ‘population aging’ is financially straining government-sponsored retirement benefits,” Catherine Collinson, CEO and president, Transamerica Institute, Transamerica Center for Retirement Studies, and executive director, Aegon Center for Longevity and Retirement, explained in a statement about retiring in the 21st Century.
“Simultaneously, employers have been replacing traditional defined benefit pension plans with employee-funded defined contribution retirement plans,” she said. “Today, individuals are expected to take on increasing risk and responsibility in self-funding a greater portion of their retirement income.”
A recent study examining retirement income strategies found that almost half (49 percent) of those surveyed said Social Security will be their top source of income when they exit the workforce.
Theoretically, Millennials should be doing better than older generations when it comes to retirement planning. In a separate study comparing generational trends, only 22 percent said they are factoring Social Security into their retirement planning. But sadly, they’re doing little to make up for it. Almost 40 percent still aren’t saving on their own.
Closest to retirement age, Baby Boomers are doing better at socking away money. Nine in 10 are saving on their own in a 401k or other account. Their nest egg might not be enough though, considering around 80 percent are counting on Social Security to supplement it.
Thankfully, it’s doubtful the program will collapse entirely during Boomers’ lifetime. Younger workers, on the other hand, are right to be concerned. Social Security experts say the government just might end up increasing payroll taxes and decreasing benefits in the coming years in order to rescue the program—less than stellar news for an already struggling younger generation of workers.
Summing up the Board’s report, Nancy A. Berryhill, Acting Commissioner of Social Security, said, “The Trustees’ projected depletion date of the combined Social Security Trust Funds has not changed, and slightly more than three-fourths of benefits would still be payable after depletion. But the fact remains that Congress can keep Social Security strong by taking action to ensure the future of the program.”
Despite a tumultuous political climate, Social Security seems safe. But Social Security is rarely enough to cover more than the most basic living needs. And with the average monthly Social Security benefit coming in around $1,250 and growing slowly, this fact isn’t going to change anytime soon.
For some, a government or corporate pension may provide additional, regular income. The majority of Americans, however, will have to maximize what they themselves have set aside in their retirement plans to sustain their standard of living throughout retirement.
I spoke with a couple about to retire recently. They told me about all the things they anticipated doing in the next few years: travel, taking some classes at the local community college, becoming more tech savvy to keep up with the grandkids. A shadow, however, passed over the wife’s face as she mentioned something she was NOT looking forward to – retirement.
“I’m going to miss that green envelope,” she said. “Knowing I won’t be seeing it in our mailbox makes me really nervous.”
She was referring to her husband’s monthly pay receipt. For decades, his paycheck had been deposited as regularly as clockwork in their checking account and was the anchor and compass of their financial management. Without it, they felt like they were on their own trying to figure out how much they could withdraw from their retirement reserves – not to mention how to plan for taxes, deciding which accounts to draw from first, and how to invest.
In many cases, after a lifetime of receiving paychecks on a consistent basis, retirees must shift gears and start creating their own income. However, like my retiree couple, they find the prospect pretty challenging and, at times, overwhelming.
Retirees must learn to separate fact from fiction when it comes to generating the income needed for their sunset years. By focusing on actionable goals, retirees can maximize their retirement assets. First, let’s get the fallacies out of the way.
Many retirees believe that if they could just get the portfolio allocation and security selection “right,” they will have enough for their retirement. It may surprise them, however, to realize that in the studies done on sustainable withdrawal rates, the allocation of the portfolio providing the withdrawals was not very important to the results.
Instead, the most effective way to ensure that retirees’ resources will last in retirement is for them to focus primarily on expense management.
Taxes, timing, and spending are fairly simple principles. What’s not so simple is coordinating the three. Finding a financial professional can make a big difference here: He or she is trained to take all these factors into account in designing an individual retirement income strategy that makes sense for you.
From Is Social Security Enough for Retirement? ©2017, Certified Financial Planner Board of Standards, Inc. All rights reserved. Used with permission.
It was October 15, 2007 and the cameras were rolling. At a media event hosted by the Social Security Administration, Kathleen Casey-Kirschling applied online for her retirement benefits. Born January 1, 1946 at 12:01 a.m., she was officially America’s first Baby Boomer to file for Social Security.
Casey-Kirschling merrily pointed and clicked her way through the online application, saying: “It’s so easy! You can do this from home.”
And so launched the “silver tsunami” of retiring Baby Boomers filing for benefits at a clip of more than 10,000 per day for the next two decades.
Ask any financial planning professional, what we may have thought about this momentous occasion, and you would have probably heard a loud groan. The unintended message sent to the Baby Boomer generation by this short media clip was not a very good one.
First of all, Ms. Casey-Kirschling was 62 years old. Yes, this is the age Americans with a sufficient work history become eligible for retirement benefits from Social Security. But was Kathleen aware of how much she was forfeiting in benefits by not waiting until she reached her full retirement age (FRA) of 66? The answer is approximately 30 percent. And if she had waited an additional four years till age 70, her benefit would be 62 percent higher than what she got at age 62.
Next, as her hyphenated last name suggests, Kathleen was married. That fact alone opens up all sorts of possibilities for coordinating her claim with her spouse, to give her more in benefits than what she would receive based solely on her own work record. Figuring out which spousal claiming strategy makes the most financial sense is anything but something you can easily do in a few minutes from home. It takes some real analysis, yet it can lead to upwards of tens of thousands of additional dollars over retirement.
In all fairness, Ms. Casey-Kirschling may have been completely aware of what resulted in a penalty for taking benefits before full retirement age, and perhaps had done her homework on how she could coordinate her benefits with her husband’s. The reality, however, is that most Americans do not know that there are smart and not-so-smart ways to take Social Security. Too many believe that it’s best to take the money at the first opportunity and run.
How I wish we could have added 20 more seconds to that 2007 Social Security media clip with a consumer-friendly message of my own.
Before you point and click to get your Social Security retirement benefits, spend some time getting good advice about your options. Be aware that the Social Security Administration, while extremely helpful, efficient and high-tech, cannot give you advice about when and how to claim.
Better still is to work with a Financial Planning professional who can look at your whole financial picture, and has the expertise and specialized software to help you make a good decision. This could make all the difference between just getting by in retirement and truly enjoying life in your later years.
From Claiming Social Security Benefits: Think before you point and Click Copyright ©2017, Certified Financial Planner Board of Standards, Inc. All rights reserved. Used with permission.