Does your retirement portfolio account for Social Security decreases?
Recently I attended a retirement seminar and the speaker detailed changes in the social security system. I had already researched that the current system is only fully funded until 2035 but the speaker informed us of something we didn’t know. Starting in 2037 the system will change to a money in money out system. If you check your Social Security statements you will see that as of now, anyone receiving benefits in 2037 will receive a 25% reduction in their benefit. Here’s what the Social Security Administration has to say:
“Thus, in order to meet increased Social Security costs, substantial change will be needed. The intermediate projections of the 2009 Trustees Report indicate that if we wait to take action until the combined OASDI trust fund becomes exhausted in 2037, benefit reductions of around 25 percent or payroll tax increases of around one-third (a 4 percent increase in addition to the current 12.4 percent rate) will be required. Past legislative changes for Social Security suggest that the next reform is likely to include a combination of benefit reductions and payroll tax increases.”
The year 2037 is 20 years from now and may seem like a long time in the future. But do you remember where you were in 1997? That was 20 years ago too! It’s not too far away to start thinking about the impact to your retirement savings.
The current average benefit ranges from $2,153 (Age 62) to $3,538 (Age 70), or about $26,000 to $42,500 per year. Cutting those payments by 25% reduces the annual benefit to $19,425 to $ $31,875 annually, or a loss of $6,575 to $10,625 annually. Would you be ready to make up the difference? Are your retirement plans still on track if you need to have an additional $10,000 or more every year?
Maybe the government will save Social Security and prevent any decreases. Or may be not. If you have a financial plan, or you use a financial advisor, it may be worth checking in to see if your investments will cushion this potential blow.