The Social Security program was designed to address the long-range problem of economic security for the aged through a contributory system in which the workers themselves contributed to their own future retirement benefit by making regular payments into a fund. However, unless you have been living under a rock, you probably have heard everyone from the media to your politicians, trying to explain the problem with Social Security. It has been described as everything from a program in need of minor tweaks to the system in a dire crisis requiring urgent, radical reform.
First, let’s focus our reliance on this entitlement. While 70% of workers are not confident Social Security will provide benefits equal to the benefits retirees receive today, the workforce continues to remain largely financially unprepared for retirement.
About 42% of Americans have calculated how much money they need to save for retirement.
- In a 2011 survey by the Employee Benefit Research Institute (EBRI):
- 13% of workers are very confident they have enough money to live comfortably throughout their retirement;
- 28% of workers are very confident they have enough money to pay for basic expenses throughout their retirement;
- 22% of workers are very confident they are doing a good job preparing financially for retirement, and
- 12% of workers are very confident they have enough money to take care of medical expenses during retirement.
- Only 9% of workers are very confident they have enough money to pay for long-term care during retirement.
- These percentages have dropped significantly since 2001.
Most workers have inadequate savings according to the 2011 Retirement Confidence Survey from EBRI.
- When asked to value their saving and investments, excluding their primary homes and pension plans, 56% of all workers reported total values of less than $25,000.
- To break it down further:
- 35% of workers older than 45 are not currently saving;
- 29% of all workers say they have less than $1,000 in savings;
- 45% of workers between the ages of 35 and 44 have saved less than $10,000;
- An additional 23% of workers between the ages of 35 and 44 have saved less than $50,000;
- 44% of workers ages 45-54 have saved less than $10,000, and
- 29% of workers 55 and older have saved less than $10,000
- Of those who are not saving for retirement:
- 68% report they have less than $1,000 in savings and investments, and
- 19% have between $1,000 and $9,999.
- While, slightly less than one half of all workers surveyed are offered a retirement savings plan through work, only 36% are currently contributing to their plan.
Changing Expectations
- In the last year, 20% of workers have pushed their expected retirement to later, with most blaming it on a variety of factors:
- the poor economy;
- lack of faith in Social Security system and/or the government;
- the employment situation;
- inadequate finances, and
- the cost of living in retirement being higher than expected.
- 36% of all workers now plan to retire after age 66
- 10 years ago, it was 16%;
- 20 years ago, it was 11%, and
- 8% of all workers expect they will never retire.
- 74% of workers now plan to work for pay after they retire.
- Only 23% of current retirees have worked for pay since retiring.
The Social Security System: Is it broke? Here is a look at where the Social Security program stands financially, what it means to individuals, and what you can do to supplement your retirement income if Social Security runs dry.
- Deficits: Social Security is running cash-flow deficits in 2010 and 2011 as a result of the 2008-2009 recession:
- Older workers who lost their jobs filed for benefits earlier, causing an increase in the amount of benefits paid;
- Funding took a hit, as unemployed workers did not pay Social Security taxes;
- If our Social Security system is not reformed, spending will exceed the projected tax collections in 2015. It could require hundreds of billion from general revenues to fill deficits, and
- Annual deficits are expected to hit
- $78 billion in 2020;
- $267 billion in 2030, and
- $317 billion in 2035.
- What About My Check? Social Security’s trust funds can pay full benefits until 2037, but the money will need to come from general revenues.
- The 2010 Social Security Trustees Report shows that during the next 75 years, Social Security will owe $7.9 trillion more in benefits than it will receive in payroll tax revenues.
- Important Years: Years to keep in mind:
- 2010: The annual surpluses that Congress has been borrowing to spend on other programs disappeared.
- 2015: Social Security is expected to begin running permanent deficits, requiring large and growing amounts of general revenue to pay promised benefits.
- 2037: The Social Security “trust funds” are expected to run out of special issue bonds and could require 22% benefit reduction.
What it Means
- Seniors are OK: Benefits for current retirees and those near retirement remain safe… for now.
- Social Security has enough resources to pay full benefits until 2015.
- Young workers are likely out of luck: The Social Security “trust fund” will be exhausted by the time workers born after 1970 reach full retirement age.
- Without change, anyone younger than 41 will pay full Social Security taxes, but can likely expect to receive only receive 78%, or less of the benefits promised to them.
- Additionally, younger workers likely will have to re-fund surpluses borrowed from the Social Security trust fund.
- Delaying Makes Running Government Difficult: If the Social Security program is not reformed, the program will require more than 10% of all income taxes collected in 2037, in addition to what the program already receives from its payroll taxes.
- It’s Not Too Late: What you can do now…
- PLAN, PLAN, PLAN
- Everyone has a different situation based on their income, spending and plans for the future.
- The following table may provide an idea of how much you should save to get where you want to be, assuming Social Security Insurance is not available when you retire.
- Consider how much you will need for spending in retirement.
- Inflation erodes the value of our income, making it necessary to plan for increased spending in the future.
- The chart below will help illustrate how income and spending change over time.
- PLAN, PLAN, PLAN
Current Age: 40 — Planned Retirement Age: 65
Assuming 8% annual return on retirement savings and 3% annual inflation in spending
|
Current Savings
|
Future Annual Savings
|
Total Saved at Retirement
|
20 Years Annual Spending in Retirement (pre-tax0
|
|
$0
|
$3,420
|
$250,000
|
$18,360
|
|
$0
|
$6,840
|
$500,000
|
$36,700
|
|
$0
|
$13,700
|
$1,000,000
|
$73,435
|
|
$10,000
|
$11,800
|
$1,000,000
|
$73,435
|
|
$25,000
|
$10,500
|
$1,000,000
|
$73,435
|
|
$50,000
|
$9,350
|
$1,000,000
|
$73,435
|
|
$100,000
|
$5,000
|
$1,000,000
|
$73,435
|
|
$250,000
|
$5,675
|
$2,000,000
|
$146,870
|
|
Current Spending/Income
|
Future Equivalent
(assuming 3% annual inflation) |
|
|
25 Years
|
45 Years
|
|
|
$35,000
|
$73,282
|
$132,356
|
|
$50,000
|
$104,689
|
$189,080
|
|
$100,000
|
$209,378
|
$378,160
|
|
$150,000
|
$314,067
|
$567,239
|