AUTHOR BIO
Mike Ballew is the founder of Eggstack®. He’s a member of the Financial Planning Association, an engineer, and software developer.
TERMS OF USE
ABOUT US
Mike Ballew – Financial Planning Association member, engineer, author, and founder at Eggstack.
Eggstack is an independent financial technology company located in Jacksonville, Florida. Our mission is to help you overcome uncertainty about retirement planning and inspire confidence in your financial future.
PRIVACY POLICY
Based on a recent study, 1 in 3 Americans have less than $5,000 saved for retirement. Based on that, it comes as no surprise that the majority (78 percent) are worried they’ll never be able to retire.
More than 2,000 people participated in the study conducted by Northwestern Mutual. It makes you wonder, what are these people thinking? Do they even think about retirement at all?
If you are one of those 1 in 3 Americans with next to nothing saved for retirement, if you’re counting on Social Security to save you, you’ve got another thing coming. According to the annual report from the Social Security Administration Board of Trustees, Social Security will run out of money in the year 2033. That is when they will begin reducing benefits by 23 percent. According to the report, beginning in 2033 Social Security recipients will only receive 77 percent of their scheduled benefits. If you’re a retiree expecting a check for $2,000, you’ll only get $1,540.
At some point congress looked at the pile of money building up in Social Security and they couldn’t resist the temptation to spend it. They reallocated the funds to other obligations and told the American people they could fund Social Security in real time with young people coming into the workforce. What they failed to consider is the steady increase in longevity in the U.S. attributable to better nutrition and advances in healthcare. In 1950, U.S. life expectancy was only 65 years. Today we’re up to 79. The scales are tipping toward more retirees receiving Social Security benefits than there are workers paying into it.
The Social Security Act was signed into law in 1935 by President Franklin Delano Roosevelt. Workers contributed 1 percent of their paycheck on the first $3,000 they earned (referred to as maximum taxable earnings). Over the course of the next 80 years, the worker contribution rate has increased to 6.2 percent and the maximum taxable earnings has increased to $176,100.
One of the proposals on the table to fix Social Security is to increase the worker contribution rate to 7.2 percent. Are we really to believe that if congress increases the worker contribution rate from 6.2 to 7.2 percent the problem will go away? Why should we believe it? Both the contribution rate and maximum taxable earnings have increased dramatically over the years, and yet the program is still headed for insolvency. Something more needs to be done than just another increase in the worker contribution rate.
In 2005 President George W. Bush put forward a plan that would have allowed workers the option to invest part of their Social Security savings in the stock market. The plan to privatize Social Security was aimed at addressing the shortfall in funding. Some members of congress and others resorted to fearmongering to fight the proposal. They claimed the stock market is too volatile to invest retirement savings and it would bankrupt Social Security. The president’s proposal was never implemented and Social Security remained on the road to failure.
One-third of all Americans participate in some type of employer-sponsored retirement program such as a 401(k) plan or TSP account. Most of the money in those accounts is invested in the stock market by way of mutual funds. Stocks have traditionally provided higher yields than bonds or interest-bearing accounts. This begs the question, why is the stock market the investment of choice for the one-third of Americans who are smart enough to participate in their employer’s retirement plan, but it’s too risky for a portion of one's Social Security?
Social Security is not enough money to live on in retirement and it’s on shaky ground at best. If you are part of the 1 in 3 with less than $5,000 saved for retirement, it's time to get serious about your future and start saving more.
Photo credit: Pixabay Eggstack News will never post an article influenced by an outside company or advertiser. Our mission is to help you overcome uncertainty about retirement planning and inspire confidence in your financial future.
Financial Planning Association member, engineer, author, and founder at Eggstack.
