Retirement’s not what it used to be. Neither is paying for it.
While the state of our Social Security system is fragile, almost no one believes it will go the way of the dinosaur. A supplement will very likely be there in one form or another. The real challenge lies with our ability to plan and achieve the kind of retirement we’ve dreamed about.
From a financial planning point of view, Social Security should only be considered one part of a person’s retirement needs, preferably a minimal one. Social Security was designed to be a supplement, not one’s primary retirement-funding vehicle but for many it has become exactly that. Consider that in December 2006 the average monthly payment was $603 for an individual, $904 for a couple, plus any applicable state supplementation according to the US Social Security Administration (www.retirement.gov/policy). That’s less than $12,000 a year – hardly lavish.
The government is still collecting more money from workers than it is distributing. However, in approximately 13 years the flow will reverse, with outflows outpacing inflows. The Social Security Administration (SSA) notes that by 2042, the system will be bankrupt.
Consider that most of us can expect to live longer than previous generations. And as our population ages, there will one day be more retirees than workers in the United States, meaning fewer workers will need to support more retirees. Demographics and time are working against us and one day this bill will have to be paid.
In some 35 years Social Security will be exhausted as the number of Americans 65 or older should have doubled and there won't be enough younger people working to pay all their benefits. Only about 73 cents for each dollar of scheduled benefits will be able to be paid according to Government estimates.
What about inflation? This is another great risk to long-term purchasing power, especially for anyone with limited income. Will today’s dollars be worth the same tomorrow? Look at the prices of gasoline, postage stamps and housing. Almost nothing costs what it used to, which is why any financial-planning discussion should cover ways to fight inflation.
Privatization is the one-word answer offered to rescue the system. It will probably help but if the concern is how to fund one’s retirement, that also is only part of the answer.
Among other things, this country was built on the ideas of self-reliance and independence. Financial planning should be no different. While many of today’s aging workers may be overwhelmed with fear and anxiety about how they will fund their Golden Years, the truth is there have never been more products and services to help one live a comfortable retirement.
Wall St. scandals have made Americans risk averse. But the prospect of a paltry retirement sounds even worse. While no one knows what direction the markets will take, the need for sensible, long-range financial planning has never been greater.
Therefore, while privatization has potential, the real way out of the retirement-funding jungle will be the action of individuals, many working with the help of independent financial professionals, to get the most out of their retirement years. Therefore, Americans need to invest wisely and early if they want to reach the Holy Grail – a safe and secure retirement.
According to Dr. Ken Dychtwald, author of best seller, Age Wave, those who enjoy retirement are not necessarily the ones with the most money. It’s those who’ve planned for the long term, very often with the help of an independent professional, who frequently get what they want. Being financially secure surely plays a key role in being able to enjoy retirement. However, it’s the planning and goal-setting that often helps one become financially secure enough to enjoy their Golden Years.
Individual Retirement Accounts (IRAs), long term care insurance and a much-improved line of annuities are just some of the products that are helping individuals live longer, more fulfilling lives than previous generations. Other concepts like estate planning and wealth transfer are being used more and more by middle- and upper-middle class families to protect for their children and grandchildren what they’ve often spent a lifetime earning.
No two of us are alike and each of us has a variety of financial needs. And Social Security, not in its strongest day, could meet each of them. As Americans, not only do we have the resources but we also have a responsibility to ourselves, our family and our community to plan for our financial futures. Americans will meet their retirement challenge, no self-reliant, independent-minded people would settle for anything less.
Paul Strebel, CFP, CPA is an independent financial adviser with The Strebel Planning Group in Ithaca (www.strebelcpa.com).
Add a Comment:
Your Name:
Email Address*:
Website:
*Required. Email address will not be visible.
Paul Strebel My extensive background includes experience working for a “big eight” accounting firm, two large brokerage firms, two large insurance companies, as well as tax manager for a large international manufacturing corporation. Full Profile & Contact Information...
