39% of Americans are banking on social security in retirement – but should they be? – The madman

Millions of seniors now collect social security and use this money to pay for their living expenses. Not surprisingly, 39% of Americans think they will not be financially secure without these benefits, according to Provision Living data. The problem, however, is that social security is facing serious financial problems that could leave future beneficiaries in the trap of benefits. A more serious problem is the fact that social security has never been designed to support the elderly.

The uncertain future of social security

Let us be clear: social security is in no way bankrupt. Since the program is funded by payroll taxes, as long as we have staff and we maintain the current practice of removing social security taxes from pay, benefits will be available. That being said, once the program's earmarked funds are exhausted, which could happen as early as 2034, Social Security may need to reduce benefits by as much as 21% (and this figure can potentially increase by according to the state of finance of the program.).

Clearly, this is bad news for current and future beneficiaries. It also means that older people may need to rely even more on their own savings to stay financially secure, especially if social security, even in its most solid state, is not considered to be covered. the bills.

At present, social security is expected to replace about 40% of the average employee's early retirement income. Most older people, however, need about twice as much to live comfortably and, although reducing costs can help make up for the lack of savings, living with social security alone does not help. is not usually an option.

When we read that 39% of Americans feel that they need these benefits to be financially secure in retirement, it does not necessarily mean that they are not saving or that we are struggling with a serious crisis. These advantages will be in one form or another, and even if they are cut, they will still provide an income to those who collect them.

In fact, the average beneficiary now receives about $ 17,500 a year from Social Security. Even if that number were to fall by 21%, there is still about $ 14,000 a year, which is not ridiculous. At the same time, workers who think they rely on social security to recover a large part of their total retirement must proceed with caution and strengthen their savings, especially when a future reduction in benefits is an undeniable possibility.

Securing one's own retirement

The more you are able to save for retirement during your working years, the less you will have to rely on social security when you are older. Currently, workers under 50 can contribute up to $ 18,500 a year to 401 (k) and $ 5,500 to an IRA, while those aged 50 and over can contribute up to $ 24,500 in the old and $ 6,500 in the other. These limits also increase by $ 500 each for 2019, providing an even greater opportunity to save.

Of course, many people will inevitably have trouble maximizing a 401 (k), and some might have a hard time achieving an IRA. So the solution is to save as much as you can reasonably for as long as you can, and to hope that your investments generate a return that is high enough to make your modest contributions grow in a considerable amount over time. However, if you invest a lot in equities, chances are you'll get an average annual return of 7% because the historical equity market average is approaching 9%.

The table below gives you an indication of how much you could accumulate if you save regularly throughout your career and accumulate shares of your 401 (k) or IRA:

TABLE AND CALCULATIONS BY THE AUTHOR.

There is nothing wrong with integrating social security into your retirement plan, but do not make the mistake of leaning too heavily on these benefits, especially when you have many options to build wealth. Otherwise, there is a good chance that you will be disappointed when your golden years are revealed.