Your retirement with Social Security cutbacks – Do the Math
For those of you expecting that payout from Social Security in 5 years from now, a decade from now, or a few decades from now – what if the Social Security benefit is not what you think it will be? The best laid plans of mice and men… A lot can happen between now and then. Be prepared, plan ahead.
Social Security will probably still be there when you retire – in some form. But, likely, the Federal Government will react to any “near insolvency” by severely cutting back on how much you get and/or moving forward the age at which you will get the full benefit.
In the first case, the payout to you would be less saving the fund money. In the latter case, they are looking at the actuarial tables of how long you are likely to live and starting payments closer to the date of your statistical demise. That saves the fund money too. Good for the Social Security Program – bad for you.
So, you better be ready to paddle your own canoe.
Suppose you calculated your monthly expected benefit from Social Security and one day, quite unexpectedly, the “breaking news” is that: a) you will not receive the benefit at the age you planned (they pushed it ahead) and b: that the monthly payout will be less than you expected.
Suppose you had to augment the planned Social Security payout with your own funds.
How much in lump sum cash would you need to invest today to pay yourself a monthly amount for the rest of your life? Or, how much in lump sum cash today would you have to invest in order to make up for the shortfall between the amount of money you expected to get from Social Security and what you will actually receive?
Check out this article from the Wall Street Journal and do the math.
Also, check out the URL’s for on-line calculators to help you calculate what investment it would take in todays dollars to provide you a monthly payout (similar to Social Security) for the rest of your life
From the Wall Street Journal…
Last week’s landmark tax deal sharply changes the financial outlook for Social Security. That has huge implications for your retirement. And most people don’t have a clue what’s coming.
The deal, by cutting payroll taxes for one year, weakens Social Security’s funding. It puts those payroll taxes “in play” as a political football for the first time. And by freezing federal taxes at today’s low rates, it will add at least $900 billion — and probably much more — to our spiraling national debt. That threatens the ultimate financial stability of the federal system.
Note that while Social Security is called a “trust fund,” that is largely a matter of internal accounting. Your Social Security checks ultimately come from the same flow of tax dollars as all other federal spending. Social Security can’t stay solvent unless Uncle Sam does…
According to the most recent survey by the Employee Benefits Research Institute, a think tank specializing in the topic, fewer than half of workers have even saved $25,000, and only a third have saved as much as $50,000. Forty-four percent have saved less than $10,000, and a quarter have basically saved nothing at all.
To put these numbers in context: Someone with $25,000 can buy an annuity (with the 3% annual bump) paying maybe $1,400 a year. Someone with $50,000 can raise that up to $2,800 a year. That works out to an income of $54 a week. Good luck with that.
If we want to cut Social Security, even prosperous middle-class Americans need to save much, much more. Starting about 20 years ago.
Hand’s on – Play with the math yourself with these online calculators
Read the full article in the WSJ:
Look under the covers and see how Social Security works