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MCF Insights: The Social Security Fund Might Be Dry in 16 Years

Can you and the next generation of retirees count on the government?


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. Every year, the Social Security Board of Trustees updates its annual report and revamps its projections. For 2019, the Trustees concluded that the Social Security fund might be dry by 2035.1 That’s 16 years from now, just about the time when current 50-somethings may be relying on Social Security as their sole income.

The Challenges Facing Social Security 

In the past, we have seen signs that the government could clamp down on beneficiaries, usually by proposing tightening of the government’s method of calculating cost of living adjustments – meaning benefits would increase much slower than inflation.1 

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?

Increasing life expectancy puts pressure on the Social Security system as well as individuals’ savings. As a notable Bankrate article highlighted, when Social Security began paying benefits in 1940, the life expectancy was 72.7 for men and 74.7 for women.2 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 86.3 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 will 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.

What You Can Do for Your Retirement 

Here are some suggestions for going about these two tasks:

Increase 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 monthly 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.4

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 Amazon Prime?

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. 

Kiplinger recently used this data to compile its list of the Cheapest Places to Live and found that Harlingen, Texas was the cheapest, with a cost-of-living almost 25% below the national average.5

Work longer. 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 

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. Contact an MCF Consultant to discuss how to factor social security into your financial plan.

MCF has published this article with permission from Financial Media Exchange.

1 https://www.ssa.gov/oact/TRSUM/

2https://www.bankrate.com/retirement/when-to-take-social-security/

3https://www.ssa.gov/planners/lifeexpectancy.html

4https://www.gobankingrates.com/retirement/planning/why-americans-will-retire-broke/

5https://www.kiplinger.com/slideshow/real-estate/T006-S001-cheapest-u-s-cities-to-live-in-2019/index.html

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by MCF), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from MCF.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.   MCF is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of the MCF’s current written disclosure statement discussing our advisory services and fees is available upon request. If you are a MCF client, please remember to contact MCF, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services.