Happy 75th birthday to Social Security! We hear about social security everywhere — the radio, TV, newspapers, online — and it’s likely to remain a contentious issue. Although benefits are quickly diminishing, promises made to baby-boomers are likely to be kept. However, unless our political leaders make drastic changes to the benefit and contribution structure, the children of baby-boomers will not be able to care for retirees the way that baby-boomers cared for their elders. It is simple mathematics.
The normal retirement age has already been increased to age 66, even 67, depending on year of birth, and the retirement age could increase further in years to come. More frightening is that approximately 14 percent of people age 65 and over rely on Social Security for 100 percent of family income, and approximately 50 percent of people age 65 and over rely on the Social Security benefits for 50 percent of income.
Actuaries estimate that the Social Security fund will need an additional $5.3 trillion in today’s dollars to pay all promised benefits, and the program already takes in less money than it pays out. From what tree will that money fall? Further, the Social Security Trust Fund was consolidated into the federal budget deficit — currently at $1.3 trillion — meaning that the trillion dollar deficit is calculated AFTER using up all the money that has been received through the Social Security payroll tax. So our retirement dreams of sipping Margaritas pool-side in an exotic locale depend upon the payment of the National Debt!
Although these numbers are intimidating, the Social Security Trust can remain solvent if our political leaders take steps now to increase contributions or reduce benefits. A bi-partisan commission has been established to address the long-term viability of Social Security and Medicare. Let’s hope that courage prevails over expediency, but, if not, we need to consider alternatives to Social Security in our golden years.
More and more, I meet people who have not set aside enough savings for retirement because of a period of unemployment or underemployment. Their savings are further impaired by the meager returns of large-cap U.S. stocks over the last 12 years, and by bond and CD yields under 3 percent. Consequently, many people are beginning to realize that they will need to work longer and put aside more assets to meet their expectations, especially in light of a longer life expectancy.
Whatever your predictions about the future of Social Security, you may want to begin thinking about the implications of a smaller Social Security income on your retirement — or begin planning now to augment your retirement income through contributions to a 401(k) plan, SEP, IRA, Roth IRA or annuity.
Bill Sheehy is owner of Sheehy Associates Inc. which specializes in Retirement Planning for individuals and corporate 401(k) plans. He is a Certified Financial Planner, a Certified Employee Benefits Specialist, a Certified Fund Specialist and a Chartered Retirement Plan Specialist. He can be reached at bill.sheehy@lpl.com or by calling 609-586-9100.
Sheehy Associates. 3812-B Quakerbridge Road, Suite 208, Hamilton. 609-586-9100. bill.sheehy@lpl.com
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