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If you are in decades away from retirement, your strategy will not look much like that of previous generations who relied heavily on social security to lead them through their golden years.
Recent reports show that social security trust – a government-run program with benefits for retirees, the disabled and their families – will be underfunded next year, and experts believe that the changes program are imminent.
Social security currently accounts for about one-third of all retiree incomes, according to a study by United Income and the Social Security Administration. The average pre-tax benefit for social security beneficiaries is US $ 1,420 per month, or about US $ 17,000 per year.
It remains to be seen whether the changes to the social security program will include a reduction in individual benefits or an increase in taxes. To prepare for retirement in decades, we should probably badume that payments will not be larger, wrote Eric Roberge, a Certified Financial Planner, in an article published by Kiplinger Personal Finance Magazine.
"This gives us an important starting point for planning: Regardless of the future aspect of social security, we know that this will probably not be enough to cover all of your living and health costs in retirement," he wrote. Roberge, who runs the financial planning company Beyond Your Hamock.
"When I create long-term financial plans for my 30- or 40-year-old clients, they answer questions like," When can we retire? and & # 39; how much do we save to get there? & # 39; we usually have at least two sets of projections, "explained Roberge." These basic projections all use the same badumptions – with the exception of Social Security. With a projection, we badume that the customer will get 50% of their profits. The other projection totally removes income from social security. "
In some cases, said Roberge, clients will see their expected success rate – the likelihood that they will have enough money to last in retirement – will collapse when social security will be removed from the equation. And this is not even their "full" estimated profit.
"This is not a reason to panic, but it's a good reminder of careful planning when you make your own projections or your long-term savings strategy," Roberge wrote. "Your ability to finance the life you want today and tomorrow and to ensure your financial security should not depend on Social Security income."
For those nearing retirement, experts suggest waiting to claim Social Security to make the most of it. Under the current program, the postponement of social security beyond the retirement age increases your benefits by up to 8% per annum.
A new study by United Income found that old-age poverty could be reduced by half if each retiree claimed social security at the "best financial moment". According to the report, retirees risked losing $ 2.1 trillion in collective wealth, or about $ 68,000 per household, because they chose to claim social security benefits at the wrong time. for many, is before the age of retirement.
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