Social Insecurity

One-third of Americans have saved less than $1,000, according to the annual Retirement Confidence Survey conducted by the Employee Benefit Research Institute.

Research also shows that retirees lean heavily on Social Security. Program benefits account for about 38 percent of income among aging Americans, a figure diluted by beneficiaries with other sources of income. For many beneficiaries, Social Security benefits comprise a much higher percentage of income. In 2012, almost half of unmarried elderly women in the program relied on an average monthly benefit of $1,043 for 90 percent or more of their income.

But the Social Security deficit is well publicized. In 2010, outgoing benefits outpaced incoming payroll taxes; in 2020, interest accrued on bonds in the program’s Trust Fund, intended to buffer temporary shortages of funds, will be depleted, and the program will be forced to sell the bonds to cover benefit payouts. By 2033, the trust fund itself will be gone, leaving payroll taxes as the sole revenue source for benefit payouts, which will only cover about 75 cents on the dollar as the number of older Americans increases, from 46.6 million today to more than 77 million in 2033.

Rightfully so, the bottlenecking of retiring Baby Boomers is frequently blamed, but there are other issues for the program’s impending shortage, according to experts.

Problem 1: Disability

Andrew Eschtruth, associate director for external relations at the Center for Retirement Research at Boston College, says there is a dramatic rise in the number of people collecting disability insurance from Social Security, which he links to the aging population. According to reports released by the SSA, disability benefit recipients in Virginia increased 66 percent from 2002 to 2013.

Problem 2: Life Expectancy

People are living longer. When the program was founded in 1935, life expectancy was 61 years compared to today’s 79, and these figures increase when men and women reach age 65, to 81 and 84, respectively. Yet, since Social Security’s inception, the age at which full retirement benefits can be taken has increased by fewer than two years, from 65 to 67 (the age at which retirees born 1960 and later can take full retirement benefits).

The “problem” of living longer impacts retirement. According to Eschtruth, despite living longer, the average American is not working much longer, resulting in lengthier retirements for which many are under-prepared. Dan Abbott, president of retirement-strategy firm Virginia Retirement Services, says he believes people need to work longer as longevity rises.

“You really need to work on trying to work until age 70,” he says, to maximize benefits, which increase about eight percent each year benefits are not taken from ages 62 to 70.

Plan Appropriately

The biggest mistake Eschtruth says younger Americans make when planning for retirement is saving too little, while older Americans are “too optimistic,” not taking into account potential changes in life circumstances, such as the premature death of a spouse. Abbott agrees, noting how he has seen many clients in his 43-year career overestimate how long their money will last and failing to take inflation into account when saving.

Abbott advises everyone to start saving as soon as they have a job, and to put as much money as possible into an IRA. When preparing for retirement, he recommends to first eliminate credit card debt and house payments, in that order, to maximize Social Security benefits by working longer and collecting benefits as late as possible—and, of course, to enlist the help of a skilled retirement advisor.

Where to Begin?

Start Saving
  • With the view of money as a tool instead of a consumable, start saving now. Time is literally money; don’t wait until your debt is paid off to start investing.
  • Rather than let your money sit in a checking account depreciating, invest as much as possible (up to respective contribution limits) in a retirement plan such as a 401(k) or an IRA, which have various tax benefits and offer protection from bankruptcy and most creditors, depending on your state.
  • Aggressively evaluate your spending habits, looking out especially for “luxury” expenses.
Manage Debt
  • Minimize interest. Talk to your creditors before falling behind—many are more willing to negotiate while you are still current on payments. Alternately, consider consolidating debt to a lower-interest credit card.
  • Make a budget, but don’t be afraid to budge it. Like dieting, a too-restrictive financial plan may lead to feelings of deprivation and discouragement. Allocating a small amount for the occasional impulse buy can help keep you motivated and on track.
  • Set goals of varying degree and time. Reaching even small milestones, such as paying off a low-balance card or raising your credit score a few points, helps keep the big picture in sight.
Think Ahead
  • From 1913 to 2013, inflation rose by about 3.2 percent each year. Identify your target retirement salary and add 3.2 percent for each year of anticipated retirement, compounding the amount annually, to determine how much to save.
  • Recognize the inevitability of the unforeseeable: the premature death of a spouse, a less-than-expected inheritance, cost-of-living increases. No one ever said, “I wish I’d saved less for retirement.”