Before you make a decision as to how much money you’ll have to save for retirement, you’ll have to figure out how much your Social Security benefit will be and how much money you’ll have available to you from your pension. You’ll have to save whatever you plan to spend in retirement that isn’t covered by those two options.
Get online and find a free financial calculator online and then take a look at your Social Security statement. It’s sent to you from the Social Security Administration every year. If you can’t find your statement, look up your benefits on the Social Security Administration (SSA) website or call them at 800-772-1213.)
Should you have plans to spend no more than you should be getting from Social Security and your pension, then you don’t have to worry too much about savings. But if you plan on spending more than you’ll be getting from Social Security and pensions, you’re going to have to have a healthy savings account.
Don’t expect your Social Security check to provide you with half of what you need to live on once you retire (or even more.) Things have changed. Anyone retiring after the current generation of retirees is more likely to get about 25% of their retirement income from Social Security. This means that you had better start thinking “how much do I need to retire?”
Social Security does not have assets backing it up and it’s not funded. It’s really quite simple. Current employed individuals put money into Social Security through Social Security deductions from their paycheck. This money goes right into the benefit checks of retired individuals. In 1950, it took 16 workers to make enough money to support the benefits of one retired person. Today that’s down to about three working people per Social Security recipient. Forty years from now there will only be two workers to provide the benefits for every one recipient. And that ratio is simply not enough to provide benefits according to the schedule currently in place. To do this, taxes will have to be raised.
Today’s excess Social Security funds go into Treasury bonds that are meant to be spent in the future when they’re needed. Studies show that by the year 2041, not only will there no longer be excess income, but these Treasury bonds will be spent, and Social Security will only be able to pay about 78% of expected benefits. This means that anyone who was 35 in the year 2007 should not expect to get more than 78% of his or her scheduled benefits and there will be more reductions after 2041.
Options to Keep Social Security Alive and Well
There are a few possibilities open to the government to keep Social Security stable. It can plan on:
• Plan on more taxes
• Raising standards for getting Social Security
• Lessening benefits
• Causing inflation which will lower the value of benefits
• Combine some of the ideas above
But no matter what the government does, it’s unlikely that Social Security will be able to provide the kind of benefits tomorrow’s . This means that current workers will have to save more, try to find an employer that offers a pension, and/or find an employer that sponsors a 401(k).
If you’ve already retired, you will probably be okay. It’s those who plan to retire in the future who will have to seriously consider depending on Social Security for their retirement funds.
Those who were born before 1938 reached full retirement age, according to Social Security, when they turned 65. To account for a higher life expectancy, those born after 1960 will not be considered to be of full retirement age until they reach 67. There’s a gradual change in benefits for those born between 1938 and 1960. You CAN start getting Social Security at the age of 62 but checks will be smaller than if you start taking Social Security when you’re at full retirement age. You can beat the system but waiting until whatever your full retirement age is considered to be and then living longer than Social Security tables indicate you will. But that’s a little difficult to predict.
Improve your own future by putting a few more years into the workforce. While you’re working you can be increasing your social security benefit, saving money rather than spending your savings, and accruing interest on those savings. Try to bulk up your bank account: Saving more isn’t always easy but you’re going to need the money in the future. Use less. This is a good habit to develop for when you have less money to spend and a good way to save money.
Spend some time and effort improving your health. Everybody knows that eating healthy and getting some exercise is good for you. Keeping stress out of your life and sleeping enough is also good for you. And who knows? Maybe all this healthiness will increase your years and increase the enjoyment of those years. It may even save you a few visits to the doctor’s office and money on prescriptions.
But you’d still better have health insurance. Medical bills can drain a savings account quickly. A serious illness can wipe out a savings account overnight. And long term care? It costs an arm and a leg.
Get to work on a great financial retirement plan rather than sitting around worrying what you’ll get from Social Security.
About The Author:
Jason Munroe is an avid traveler, Internet explorer, and has always enjoyed money! When not enjoying his retirement in Nevada with his wife and two grown children, Jason speaks about retirement planning and wealth building.