Millions of seniors today receive a large chunk of their monthly social security income, but many workers today do not expect to be able to do the same. . In fact, 22% of non-retired Americans think that it is unlikely that Social Security will be available to them to pay benefits upon retirement, according to the 2019 Planning & Progress study from Northwestern Mutual. The question is: are they too pessimistic or are they right?
The fragile future of social security
The latest report by the social security administrators paints a rather bleak picture of the program's financial perspectives. Over the next few years, the program will need more money in scheduled benefits than it expects to collect revenue. Thus, he will have to use his funds in trust to make up for this shortfall. However, once these funds are exhausted, social security may not have any choice but to significantly reduce benefits if lawmakers fail to intervene with a solution.
At the beginning of the year, Directors expect that these trust funds will be exhausted by 2035 and provide for a 20 per cent reduction in benefits at that time. These goals, however, are subject to change.
The good news is that no one is talking about a complete elimination of social security as a source of income for the elderly. Frankly, it would be terrible, as millions of retirees use these benefits as their primary means of paying their bills. But a 20% reduction in future benefits is also not ridiculous.
Where does it leave workers today? It's simple: they should rely on some social security money over the course of their lives, but also take care of savings issues so they do not get in trouble after retirement.
Secure your own future
It is too early to know how far Social Security will manage financially in the years to come, but you can prepare for retirement, that is, start building your own nest egg. If you consistently put money into an IRA or 401 (k) during your career, you could, in theory, create enough wealth not to worry about it at all. comes from social security.
Of course, the more time you spend building your nest egg, the more secure you are in retirement, as shown in the following table:
Start saving $ 500 a month at age:
You will have that much money at the age of 67 (assuming an average annual return of 7%):
$ 1.7 million
$ 1.2 million
In case you are wondering about these 7%, it's actually a few percentage points below the stock market average. If you have a savings window of 25 to 45 years, as shown in the table above, you will probably get a return greater or equal to this return based on historical market performance.
If you are older and nearing retirement, you will need to contribute over $ 500 a month to your nest egg to mimic the numbers above. But if you are willing to make sacrifices, either by reducing your living expenses or by working longer than expected, you can compensate for the fact that social security may not provide the retirement income you were hoping to obtain before.
Although Social Security does not disappear completely, the image of your retirement benefits could change dramatically between now and the end of your career. The best way to avoid hurting yourself financially is to save as much as you can, as long as you can, while still maintaining a stable salary.