Protecting Yourself from Social (In)Security
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.
- 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.
We only used to expect magicians to be able to balance on a one-legged stool. In today’s world, however, it doesn’t take magic. It takes diligence and smart investment decisions.
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
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