Protecting Yourself from Social (In)Security
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We’ve all heard of the classic three-legged retirement income stool: pensions, social security, and personal savings. Unfortunately for many upcoming retirees, that three-legged stool only has one leg. That’s personal savings.
In a Social Security Administration 2012 study*, 35 beneficiaries received benefits per 100 workers paying into Social Security (e.g., FICA) in 2011. In 2050, that ratio will get worse: we’ll have 49 beneficiaries per 100 workers.
The Congressional Budget Office estimated* that beneficiaries in 2033 may get smacked by rising plan costs. Their benefits may be delayed, or not paid at all.
What about pensions? In 1989, 42% of private industry employees had pensions. In 2011, only 22% (and 1 in 4 of those plans were closed to new employees).
Both Social Security and Pensions promise to guarantee an income stream for the rest of a retiree’s life. But it’s clear these two legs are wobbly.
The last leg may also break for millions of Americans. In an Employee Benefit Research Institute 2010 study*, the average retirement account balance was $69,498. Considering that a healthly couple turning 65 this year faces — on avreage — over $300K in medical expenses, $69K in savings won’t last long.
Beat the odds — don’t sabotage the last leg you’ve got in retirement.
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- Put away at least 15% or more of your income into a tax-deferred retirement account.
- Ensure that your savings grow higher than the rate of inflation.
- Most importantly, understand and aim for the portfolio return that you need with the right amount of risk in order to hit your savings goal.
* Sources:
The 2012 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, Social Security Administration, April 2012
Long-Term Projections for Social Security, Congressional Budget Office, August 2011
Study of Retirement Account Balances, Employee Benefit Research Institute, 2010