We’ve all heard at one time or another about the predicted demise of Social Security (SS). The Social Security Trust Fund is expected to run out sometime between 2033 and 2037, thereby impacting 90% of the elderly who are relying on those monthly checks.
Currently, about nine out of 10 Americans over the age of 65 are recipients of SS: 52% of married couples and 74% of the unmarried population, who turn to it for 50% of their total income. Furthermore:
- Among elderly Social Security recipients, 22% of married couples and about 47% of unmarried people rely on Social Security for 90% or more of their income.
Reports coming from the Employee Benefit Research Institute (EBRI) place many retirees in that zone of Retirement Savings Shortfalls, where the retiree must make up the difference between his Social Security payments and his investments—and a very good reason to maximize a portfolio’s returns.
One might question the EBRI’s gloomy forecast about the shortfalls that can impact our revenue streams. Unfortunately, they are predicated on “proprietary models” used to generate best-and-worst case retirement scenarios.
Drilling-down on the ‘shortfall.’
Mention the word “billion” or “trillion” and our eyes start to glaze over: it’s simply too difficult to relate to. But it’s more meaningful when we’re talking about numbers that are germane to our own situation.
Consequently, when were told by the EBRI that our overall, national retirement shortfall is reaching around $4.13 trillion, we can only make sense of it when put into perspective.
The amounts shown below reflect annual amounts needed per year to make up that shortfall, which underscores the importance of structuring a well-balanced portfolio over the years to deliver these differences:
- $62,734 for single females
- $33,778 for single males
- $19,304 per individual/married households
Generally, about 38% of the elderly’s income is met with Social Security payments. Obviously, it behooves future retirees to start investing for retirement in order to secure additional income streams from sources like IRAs, Roth IRAs and 401(k)s.
The not-so-rosy picture of Social Security’s future.
Forecasts can be all over the place, reflecting assumptions based on a lot of variables as well as those things that remain constant. As such, those EBRI calculations are based on a predictions that our Social Security benefits would not face a reduction, or elimination at anytime in the future.
Theoretically, though, the Trust Fund, which actually holds our benefits, is calculated to be “…eliminated in 2015.” Furthermore, and as noted in the overview on Social Security by Motley Fool columnist, Selena Maranjian:
“It’s not likely that Social Security will go away, but letting its benefits get reduced due to insolvency remains on the table, unless steps are taken to shore up the system.
The downside of living longer.
It’s fairly certain that the longer we live the greater chance of our shortfalls increasing—that monthly gap between what our investments provide and our Social Security benefits.
One of the ‘curses’ of living longer, of course, is that we may be faced with running out of money, or seeing that shortfall increase. Those of us in that category may end up with shortfalls that are “15 times larger” than retirees who fall in that “quartile” of “shortest longevity.”
What to do…
Aside from partnering with a financial advisor to set up an investment portfolio, a retiree might opt to delay the start of their Social Security benefits. Instead of receiving payments at 62, for example, it may prove best to wait as long as you can—delaying increases your monthly benefit by 8%.
As an example, if you wait until the age of 66 to start drawing SS, your monthly benefits have the potential of increasing by about 32% (8% x 4 years).
The key to a developing a retirement strategy starts with developing a cohesive financial plan, and enlisting the help of a trusted financial advisor for guidance that is viable beyond the age of 65, one developed in concert with a trusted financial advisor.
Start taking the steps to secure your retirement. Contact us to schedule a chat.