Social Security Problems and Your Retirement

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.

Current Age: 40 — Planned Retirement Age: 65
Assuming 8% annual return on retirement savings and 3% annual inflation in spending

Disclosures

This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.