Planning tips in case Social Security’s engine runs out of gas before you do
Americans expecting the government to fund their retirement may be sorely mistaken. Taking retirement savings into your own hands is the only smart move that can guarantee comfort in your years after work.
Today, the coming financial crisis for Social Security looks darker all the time. Recently, the Treasury Department revamped its projection and concluded that the Social Security fund will be dry by 2033, one year earlier than reported last year. That’s 12 years from now, just about the time when a lot of 55-somethings may be relying on Social Security as their sole income.
That 5.9% Raise Made it Worse
On October 13, 2021, the Social Security Administration announced that Social Security and Supplemental Security Income benefits for approximately 70 million Americans will increase 5.9% in 2022 in order to keep pace with inflation. This 5.9% leap in the annual cost-of-living adjustment was the largest since 1982.
According to the Social Security Administration, retirees will see an average of $92 added to their monthly benefits next year, raising the typical amount to $1,657. But that COLA increase also hastened the demise of Social Security’s solvency.
Why is Social Security drying up so fast and how should you change your retirement financial plan because of it? And how much Social Security should you expect?
Increased Life Expectancies Makes it Worse
Increasing life expectancy puts pressure on the Social Security system as well as individuals’ savings. As a Bankrate article highlighted, when Social Security began paying benefits in 1940, the life expectancy was 72.7 for men and 74.7 for women. The Social Security Administration only had to support people for less than a decade.
Today, a 65-year-old man can expect to live to 84 on average, and a woman to 86. There are also soon to be more retirees as the baby boomers hit retirement age. When Social Security was initiated, there were 16 workers to every beneficiary. Now that ratio is three to one, and it could soon fall to two to one, according to the U.S. Chamber of Commerce.
This all means that the next generation of retirees can’t rely on that check from Uncle Sam. That’s why you must take matters into your own hands to ensure that public woes don’t wreck your retirement. You must increase the amount you save now and reduce the amount you need to live on when you retire.
Here are some suggestions for going about these two tasks:
Increase Your Savings
Setting aside more money for retirement now leads to a much more stable retirement. Anything you can do to save more money into vehicles like a traditional or Roth individual retirement account or 401(k) pays big dividends in the future. Even starting with just $20 a month is better than letting more time go by without contributing toward retirement.
Chances are you don’t have nearly enough, judging by the dismal statistics on average retirement savings by age. Strive to do better than the majority of workers over 55, who have less than $50,000 saved.
Reduce Daily Costs
Think about the everyday expenses that are not crucial to your life. For example, how much do you spend in a month on lunches, coffee, gas or multiple streaming video services?
Those small amounts of money we spend daily add up. Cutting a $5 daily coffee break saves you $100 a month. That’s the equivalent of your phone bill. If you invest those few dollars instead, it can easily become a significant retirement nest egg.
Reduce Living Expenses
Depending on where you are in your career, you may be able to move to a cheaper area. The annual Cost of Living Index lets you compare various locations in the U.S. There are also lots of lists that talk about the best places to live for retirees and cost of living is usually an important metric for consideration.
Alas, you may have to shorten your retirement years. Working longer not only requires less money saved, it also means higher retirement income from Social Security.
Delaying your retirement is another way to reduce the amount you require in retirement. The Social Security Administration has a retirement estimator that can help you better understand the appropriate age for you to start. It also has a calculator to help find how much you can expect in benefits, provided the framework doesn’t change. You receive more Social Security benefits as you delay your start date – the latest you can begin drawing benefits is 70.
Planning is the key to making your retirement comfortable. It is never too soon to start preparing for the day and it’s never too late, either. Earn and save more money now to ensure your continued financial existence, especially if Social Security’s engine runs out of gas before you do.