Plan for a Retirement Without Social Security

April 20, 2010, By 10 comments

Plan for a Retirement Without Social Security

If you’re like most men, you watched your 401K and other retirement savings take a major hit as the recent recession wiped out some $11 trillion in stock market wealth or approximately $100,000 lost for each American household. If that isn’t enough to worry you, the buzz swirling around the long-term viability of Social Security has reached a fever pitch with soaring Federal deficits and shrinking revenues.

Like it or not, Social Security may play an increasingly important role in your retirement plans with less of your own nest egg to count on. But how secure is Social Security, and can you count on it to be there when you need it? No one knows for sure, but the answer may depend on how soon you plan to retire.

The Numbers aren’t Encouraging

Questions about Social Security’s survival surfaced long before the recession took hold. That’s because the massive Baby Boomer generation—the nearly 77 million Americans born between 1946 and 1964 that make up the country’s largest-ever generation—are beginning to reach the age where they can start receiving Social Security retirement benefits at 62.

And, those Baby Boomers are expected to collect benefits longer than previous generations as average life expectancy continues to climb. In 1940, for example, U.S. life expectancy at birth was 61.4 (men) and 65.7 (women). Those figures now stand at 75.4 and 80.

With more people collecting benefits for a longer period of time, the Social Security Administration (SSA) reports that there are only three workers per beneficiary today, a figure that is expected to drop to just two workers within 40 years. That’s a dramatic decrease from 1950 when there were 16 workers per beneficiary, and compelling evidence of a program with trouble on the horizon.

Shifting demographics combined with the effects of a deep recession to produce even more sobering figures in the Social Security Board of Trustees’ 2009 Annual Report on the health of the Social Security Trust Funds. According to the report, tax revenues will fall below Social Security program costs for the first time in 2016, a year earlier than estimated in the 2008 report. The trustees also estimated that the program will become insolvent by 2037, four years earlier than predicted just one year ago.

Commenting on the annual report, SSA Commissioner Michael J. Astrue expressed confidence the program will weather the current recession but added, "The sooner we get on the task of reforming the system, the easier it will be to make the tough choices we all know we need to make."

Where Social Security Stands Today

Exactly what "tough choices" Commissioner Astrue was referring to is yet to be determined, but some changes in Social Security appear inevitable. The most obvious options to reform are:

  • Raise the minimum age to receive benefits (it’s currently 62)
  • Raise the full retirement age (it now varies, depending on birth date)
  • Cut benefits
  • Raise taxes to generate more revenue.

Actually, the SSA already has begun the process of raising the full retirement age where you can receive 100% of the benefits to which you’re entitled. For example, people born between 1943 and 1954 can receive full retirement benefits at 66 while everyone born in 1960 and after will have to wait until age 67 to achieve their full retirement age.

While anyone currently can begin receiving benefits at 62, those benefits will be significantly lower than if the individual had waited until his full retirement age. For example, if your full retirement age is 67, you’d receive about 30% less if you retire at 62 instead of waiting until you’re 67 under the current program. Once you reach 62, the amount by which your full benefits would be reduced goes down by 5/9ths of 1% until you reach 65, at which time the percentage changes to 5/12ths of 1% until you reach full retirement age.

Your Social Security benefits determination is based on earnings throughout your career and at what age you retire. Every U.S. citizen over 25 receives an annual statement from SSA that estimates the amount of future Social Security benefits you will be eligible to receive. The amount is based on future earnings projections and total earnings to date. SSA’s website also has a benefits estimation calculator.

What You Can Do

No one can predict the future, but financial advisors generally agree that the younger you are, the more you should prepare for major changes in your Social Security benefits. Wayne Farlow, founder of the financial planning firm Financial Abundance, LLC, and a personal finance columnist for ColoradoBiz magazine, asserts that full retirement age for younger workers will increase beyond 67. He also predicts that Social Security payroll tax rates and the maximum wage level taxed by Social Security (currently at $106,800) will increase. Even with these moves to shore up the program, Farlow advises younger workers not to rely too heavily on Social Security.

"If you are under 50, plan for your retirement as if Social Security benefits will not be available," said Farlow in a recent column in ColoradoBiz. "While this scenario is highly unlikely, increasing your retirement savings will provide for a more abundant retirement, regardless of what happens to Social Security. If you are older than 50, your Social Security benefits will likely be unaffected by any future changes," he advised.

"It’s a fact that people are living longer and in better health so if you can continue to work and maximize your income, why wouldn’t you," said Terry Kelly, senior portfolio manager at Bartlett & Co., a wholly owned subsidiary of Legg Mason. "I advise my clients that if you can do that and defer your Social Security benefits, you’re far better off. Overall, take control on your retirement planning and fully fund your company’s 401K if you can because Social Security as its limits."

Both Farlow and Kelly add that when considering filing for Social Security benefits, you should take a careful look at your options and seek professional advice so you make a decision that’s right for your long-term financial future.

Jeff Waddle is a featured contributor to ManoftheHouse.com.

Comments (10):

Mike A. The Clinton's took the surplus to pay off the national debt in the 90's. SS would still be solvent if they left it alone. Blame them . - 05/27/2011
Ralph S. what laugh and farce this article is, summary has advice to pump money into a 401K for your retirement. Sure, give the crooks on Wall Street and the banking cartel your wealth for their next round of bubble followed by burst, while they then saddle us with debt to bail out their failed business plans. - 05/15/2011
Charles P. I do favor privatization of social security for workers under 35, sort of. Why not let younger workers take a portion of their SS savings and purchase government bonds and t-bills? The interest wouldn't be a lot, but it would be more than they are receiving now and we would be buying up our own debt rather than selling it to the Chinese. - 04/28/2011
Uncle Liz C. MEMO: Dear republican colleagues: Please continue to use this updated doctrine or ‘The new republican contract with America’ as the basis for all public communication as well as any new legislation. Please note the sample rhetorical spiel for each category. It should be used relentlessly; and for 'us' to understand each other, please note that the word America is used to mean corporate America and those of 'us' who are in the best position to benefit from their profitability, and the word Americans refers to everyone else. The new republican contract with America or Redistribution of Wealth and Power MEDICARE 1. Privatize Medicare thus drastically reducing costs to an unproductive segment of the population. 2. Create unlimited profit potential for the insurance industry and its investors. "Empower our greatest generation of Americans to take control of their own healthcare making America better and stronger" MEDICAID 1. Drastically reduce benefits for the poor, the lazy, the disabled or otherwise most unproductive members of society. Allow each state to figure out how to use the reduced funds to deal with their dregs. "America will be strongest when states can best determine how to deal with their most unfortunate citizens" UNIONS 1. Continue to undermine all unions in order to reduce wages, minimize benefits, and eventually eliminate paid leave. "It is against everything America stands for to force Americans to pay dues to a bunch of outdated irrelevant mafia thugs" TEA PARTY 1. Continuation of specific agriculture subsidies should keep enough of them in our corner. "We are in lockstep with the Tea Party" TAXATION 1. Keep a complex tax code with extended loopholes for the wealthiest individuals and corporations, introduce a flat tax for everyone else. "We need a tax system that is fair to everyone with few exceptions only for the most complex situations" EDUCATION 1. We need to break the teachers unions. Reduce federal funding forcing the states to cut and tax to the point where they will need to privatize the system. "States should decide how to educate their children" And remember this!!! Everything can be justified by the following: 1. It's in the Bible (somewhere). 2. It's not specifically referenced in the constitution. 3. We're broke. 4. It's a matter of national security. 5. It's a matter best left up to each state. 6. Jobs, jobs, jobs. - 04/15/2011
Tom F. Social security is solvent and will be able to pay out at the current level for the next 20 years. As of now people earning more than $100,000 per year stop contributing. If they had to keep the same rate of deductions of their income past that point ss would be solvent forever. This is proaganda designed to make you believe you won't have it. All the money is sitting in u.s. Bonds since the government has borrowed it to finance tax cuts for the wealthy and trillions for war. Those bonds ere thevsame as bonds sold to China, Japan, and wealthy investors. When they talk about default they are talking about ss, they will not default on China. That sounds un American and treasonous that they would pay them but not the U.S. Population. - 04/06/2011
John M. I am always surprised when anyone writes about a subject but doesn't look up the latest facts about it. It is common knowledge that the reason the life expectancy was low when Social Security was created was because there was high infant mortality back then. However if one lived to be 60 there were plenty who live 18 or more years. - 01/08/2011
Jeff C. for god sakes people how in the world can u trust a bank or any other type of hedge fund company who handle your money after what has happened with the billions that we lost do too greddy wall street people and a goverment that isnt doing there job - 11/07/2010
David B. social sucerity might be a thing of history when the republicans get a hold of it. the republicans as well as americans don't understand how things work. you can't balance the federal budget without cutting current people already on the social sucerity and medicare rolls. the cost of the middle east wars has made it so. the republicans have made it look like balancing the federal budget will somehow fix our problems because it won't. republicans say we should run the goverment like a business. really! lets just see how a business runs . when a business starts to decline they take all of their money and all the money they can borrow to invest in reinventing their business plan. they develope new products and services they can sell in the market. they know if they stay with the current business plan that has put them into a decline they will soon be out of business. republicans in congress are guys who gave up their businesses for a reason to run for congress and i don't think it was because their businesses were going to be growing and more profitable. this country is in a decline like we have never seen before . these bone head republicans want to not invest any money to reinvent this countries roll in the global market place. do they really think that the jobs are somehow going to come back? guess what the average wage in india is $3,000 a year the american average is $50,000 a year so what makes american people think that a money person or a rich person would be stupid enough to invest their money in a declining economy. extending the tax cuts will do nothing more than to send more money to countries like india for investment which right now is a good investment. if i were a smart business man why would i want to creat jobs here at a negative exspense to my own bottom line. if we don't invest in education and research and development that will allow us to market new products and brainpower ideas to sell than we are left with nothing to sell in the world market. that makes us just like a third world country with the same living standard. the republicans will have no problem cutting the very programs that keep us from becoming a third world country either. if you are on social sucerity as i am you need to plan on going back to work just like i am planning. i can read a federal budget spending pie graph as well as a federal revenue source pie chart and i know that with these guys running the show i can exspect big cuts in my benefits in the name of balancing the budget which means i work or go hungry. if these republicans can't figure out why they should be investing in our future even if they have to barrow the money than we are all thru because this is not a good business plan this is a plan of decline. thank god that franklin roseavelt knew how to run a business because he spent our way out of the great depression. maybe the republicans didn't like the way he did it but it worked. Ronald Raegans idea of exsposing american wages to compete with low wages around the world without any restriction calling it free and open trade did not work. if you still believe in this kind of thinking than you don't have enough smarts to look around with open eyes to really see what it has done to this country. if we don't start spending and ivesting in our future it is soon going to be to late to make any difference on the out come. these republicans are going to start in the house wasting valuble time right out of the gate passing repeel of health care which doesn't have a chance in hell of getting by the senate or the presidents desk. and than they are going to waste more valuble time trying to exstend bushes tax cuts that won't make it thru the senate or past the presidents desk. the big thing is these tax cuts never made one job instead it was invested in other countries like india for the reasons i just told you. we don't need the tax cuts for people under $250,000 as well we need to pay for the silly wars in the middle east. it makes no sense to tell someone who can't pay their bills now that the fix for the problem is to get a lesser paying job (which means less revenue).just keep following the slogans like "core values" just what the heck is a core value anyways. not taking care of your old people not taking care of sick people not taking care of hungry people not taking care of our childerns education not caring about people who will freeze to death in our streets this winter because they want to live in the streets, these are the things that these so called "core value" people want to cut and want left in our streets. no thanks i think i will keep my democratic values that i learned from god. feed the hungry and heal the sich than try to help the to feed thenselves. teaching people how to take care of them selves is easier when their stomach doesn't hurt from hunger and they are not sick. - 11/05/2010
Tom S. before changing the rules, we should look at the ssi , go over the books, probably sove the problem-just like that!!1 remember Fannie Mae and Freddy! tbyrde - 10/02/2010
Denny S. I,ve been working since the age of 8, I deserve to retire at age 62 = thats 54 years of working, enough is enough no one else can tell me when I'm ready and had enough of work, and yes its always been hard work, if social security would have been left alone and hadnt been used for who knows what all, social security could'nt possibly go broke PERIOD. - 09/17/2010

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