Over half of
current workers think Social Security will be their primary source of
retirement income, according to a Nationwide survey, and that's a big problem.
Security's spending is expected to grow substantially faster than GDP through
the mid-2030s because of aging baby boomers and fewer workers and as a result,
the latest report from the trustees of the Social Security trust fund estimate
that an across-the-board cut to benefits is looming. Can Social Security
the Employee Benefit Research Institute (EBRI) 2018 Retirement Confidence
Survey, only 7% of American workers are very confident that Social Security
will pay them benefits in retirement that equal the benefits that are being
paid to current Social Security recipients.
reason for their pessimism. A pay-as-you-go system, Social Security payments to
current recipients has outstripped payroll taxes collected since 2010. Since
then, the program's made up the difference by using interest earned on the
trust fund that it built up when taxes collected were greater than outlays.
However, interest on the trust fund will cease being enough to close the gap
beginning in 2018, and as a result, paying future retirees what they're
entitled to will require drawing down the $2.9 trillion trust fund until its
Social Security's trustees, that will happen in 2034 and at that point, the
program will be forced to cut everyone's benefit by about 25% to bring its
spending back in line with tax revenue.
25% cut in benefits would deal a decisive blow to millions of retiree's
financial security. As it stands today, 67% of those collecting Social Security
say it's a major source of their income.
unfixed, the potential Social Security crisis will force retirees
to supplement retirement income with withdrawals from their
employer-sponsored retirement plans, IRAs, or personal savings. Unfortunately,
for many that will mean drawing down a lifetime of savings more rapidly than
originally intended, leaving them without a cushion when they're older and
likely to face increases in spending because of declining health.
have to rely less on Social Security income in the future, yet retirement
savings figures suggest average Americans won't be able to replace a dramatic
cut to Social Security.
savings rates among current workers indicate average Americans aren't
contributing enough money to accounts that can provide them with the income in
retirement. Only six out of every 10 workers are saving for retirement and of
those who are contributing to a 401(k) plan at work, the average balance finished 2017 at $104,300, according
to Fidelity Investments.
to be enough. In order to avoid running out of money later in retirement, it's
commonly recommended that retirees only withdraw 4% of their savings every
person participating in a workplace retirement plans is contributing about 8.6%
of their income to their 401(k). That's not bad, but it's increasingly likely
that most workers will need to be contributing 10% to 15% per year to their
accounts if they really want to achieve financial security in their golden
could be compounded by current workers overestimating how long they're remain
in the workforce. Many Americans think they'll continue to work in retirement,
yet only about one-quarter of current retirees report they're still working. Job
loss and declining health are most frequently cited by those who are forced to
claim Social Security early or stop working in retirement.
If saving up to
15% of your income every year seems impossible, employers are increasingly
offering tools that can help you save more money annually without it busting
your budget. For instance, workplace retirement plans increasingly offer an auto escalation feature that
allows you to increase your contribution rate automatically every year by a
fixed percentage, such as by 1% or 2% per year. Small increases like this are
less likely to be noticed in your monthly budget, yet they can get you
contributing between 10% to 15% of your income to these accounts within a few
has headwinds that could force changes, but even if Congress fails to fix
Social Security, it will still be able to provide about 75% of anticipated
benefits after the trust fund runs dry. The exact amount Social Security
will pay you in retirement depends on your earnings over your career, but for
perspective, the average couple is collecting $2,340 in Social Security in 2018
and if you cut that figure by 25%, it would drop to $1,755.
could avoid such a dramatic reduction in benefits in the future in a few ways,
but none of the fixes are likely to be popular. Increasing the payroll tax
rate; increasing the amount of earnings subject to payroll taxes; adjusting how
future benefits increase because of inflation; and increasing the age at which
people can retire and collect 100% of their benefits are all possibilities, and
each is far from a perfect solution.
Congress doesn't fix Social Security, it will survive, but smart, future
retirees would be best served planning for a worst-case scenario, and that
includes taking full advantage of strategies designed to increase savings.
here for the original article from Yahoo Finance.