You probably don’t need me to tell
you that the threads of this safety net are starting to fray.
We’ve known for a while now that Social
Security is in trouble. Why? The program’s income is less than its
expenditures. What does that mean in
plain English? Simply put, Social
Security is spending more money than it’s bringing in. It’s like paying $1,000 a month on your house
when you’re only earning $750. You don’t
need to be good at math to know what happens then. Remember your elementary arithmetic?
$750<$1,000. The alligator always eats the bigger
number.
Social Security’s numbers are
gigantic. According to the latest report
issued by the program’s Board of Trustees, Social Security spent $45 billion more than it took in last year
in non-interest income.1 The
deficit began in 2010, and while it’s the first deficit since 1983, anyone with
a credit card knows that it’s a lot easier getting into debt than it is getting out of it. As C.S. Lewis said, “Easily in but not easily
out, as the lobster said in the lobster pot!”2
It’s important to remember that this
deficit is before interest. Social Security is paid for through payroll
taxes, and while tax payments alone aren’t enough to meet the program’s costs,
those payments accrue interest. Once you
factor interest in, Social Security still has enough to pay all of its
scheduled benefits until 2033—but that’s only 21 years away.
For those who are already retired,
there’s not much to worry about. It’s
extremely unlikely that Congress will take any action to cut existing benefits. It’s those who are yet to retire who should
take stock. Unless legislators act,
Social Security will be able to pay only 75% of scheduled benefits after
2033. That doesn’t mean only three-fourths
of retirees will get Social Security.
What it means is that by 2033, recipients due to be paid $1,000 a month
will get only $750.3
For many retirees, a $250 drop in
income is a big hit. The most worrying thing is that only last
year, the Board of Trustees predicted that the program’s current income would
be enough to last until 2036—three years more than the current estimate. Considering that more and more Baby Boomers
are nearing retirement, we can expect additional stress on Social Security’s
budget … at a time when it literally can’t afford any.
I know what you’re thinking. “So what’s the good news?”
The good news is that there’s no
reason to panic. Sure, Social Security
is a safety net. It’s an important
consideration in almost any retirement plan.
But it should never be the
only one—and with a little work, we can ensure that it’s not. We’ve got time. Congress might be incapable of action, but we’re not. There’s always something we can do.
For one thing, remember: we’re in the
21st century. 60 is the new
50, etc., etc. With continual medical
advances and a high quality of life, many of us can expect to be active even as
senior citizens. So the first thing to
consider is, “When do I have to retire?
When do I want to retire? Am I healthy enough to continue working after
62? Is working part-time an
option?” While many of us might dream of
retiring to a beach somewhere at the earliest opportunity, others might still
have goals to achieve, horizons to conquer.
Even if working later isn’t an
option, delaying benefits might be. It’s
called “optimizing” your benefits. If
you refrain from collecting Social Security until a few years after you retire, your monthly payments
will actually increase. Starting Social Security in your late 60s, or
even your 70s, is an excellent way to ensure you come out ahead. Another option is saving more—especially for
health care. While saving isn’t the
sexiest solution, it’s certainly the soundest.
And the earlier you start, the less you have to save at once. Start now and start small. Just a little bit set aside each month will
be a lot later on.
There are other strategies too;
strategies I might be able to help you with.
If you’re concerned about your retirement, it’s always prudent to go over
your investment portfolio. We can look
at different investing styles and choose the right one for you. Some investments are designed to provide you
with income. Some are designed
specifically with retirement in mind.
Some of these might be right for you.
So give me a call at 215-886-2122.
Let’s be proactive about this.
Give me a call to discuss retirement, the latest on Social Security, or
your finances in general. I’d be happy
to review your plan. Let’s create your own safety net—one that works regardless
of the news from Washington.
