People in their 50s who are still working can start to see an eventual end to daily work down the road. In another 15 years or so, these 50-plus workers will look forward to exploring retirement and enjoying the benefits of more leisure time.
Having spent a life dedicated to employment and contributing to society, now comes the time when promises of an easier life are fulfilled and realized.
At least, that’s been the idyllic dream for 70-odd years, since the start of social security.
Today, the financial crisis is hitting social security, and it’s not pretty for many Americans. In June, Americans got to see the annual report from The Social Security Board of Trustees.
The big news? Well, the board restated last year’s projection that the Social Security fund would be dry by 2033 – that’s 20 years from now, just about the time when 50-somethings today may be relying on Social Security as their sole income.
Social Security is funded by trust funds, with 2023 data showing a brighter outlook than before. Several funds were expected to be depleted by 2033.
CNN Money reported that the Old-Age and Survivors Insurance Trust Fund might be exhausted by 2033, resulting in only 77% benefit payouts using payroll taxes, a year earlier than a previous estimate.
Meanwhile, the Disability Insurance Trust Fund is projected to cover full benefits until at least 2097.
Why is Social Security depleting so fast and how should you change your retirement financial plan because of it?
And how much Social Security will you end up getting? You have been paying into the system your whole life, but will that matter when it comes time for you to retire?
Table of Contents
Aging Population and Life Expectancy
Life expectancy is rising for both men and women. This has a significant impact on the fund. As highlighted by a recent Bankrate.com article, when Social Security was created in the 1940s, the life expectancy was 72.7, and for women, it was 74.7 years, two years longer.
Estimates show that the average life expectancy for men is now 20 years longer (around 85 years old) and 22 years longer for women. This means that by 2033, there will be more people eligible to draw from the fund and they will expect to draw from it for a longer period.
Another major contributor to this gloomy outlook for social security is the aging workforce. When Social Security was initiated, there were 16 workers for every fund beneficiary.
Now there are only three workers for every beneficiary, and soon that number will fall to two, according to the U.S. Chamber of Commerce. As more people leave the workforce, there are fewer people to contribute to the fund, an imbalance that will only continue to grow.
What are the alternatives to finding that the coffers are empty by the time you retire? There are two ways to approach this question.
- Increase the amount you save now
- Reduce the amount you will need to live on when you retire
Both of those seem obvious statements, but how do you actually achieve either one of them? Or preferably both?
Setting aside more money for retirement now will lead to a much more stable retirement. Anything you can do to save more money into accounts like a Roth IRA or 401(k) will pay big dividends in the future.
Even starting with just $20 per month would be better than letting more time go by without contributing toward retirement.
The long and short of it is many Americans who are expecting the government to fund their retirement may be sorely mistaken. Taking retirement savings into your own hands is a smart move that can avoid that problem.
Not sure how to save more money? Here are 85 ways to save money – you don’t have to do just a few of them to make a big impact on your ability to contribute to retirement today.
Not sure if you are saving enough money? Look at the somewhat dismal average retirement savings by age.
You also need to be up to date on how much money you can save in various types of accounts:
- Best Online Stock Broker Sign-Up Bonuses – Yes, you can get a big bonus just for opening an account!
Reduce Daily Costs
How can we bring in more income, curb expenses and save money for our eventual retirement? Think about the daily expenses that may or may not be crucial to your financial existence. For example, how much do you spend in a month on lunches, coffee, gas, or Direct TV entertainment?
Some tips to help you save a couple of bucks each week include car-pooling to work, eating home-packed lunches, and skipping that increasingly expensive 2nd cup of coffee from your favorite barista.
Did you know that if you spend $5 on coffee every workday, that averages to $25 a week, $100 a month (that’s your phone bill!), or $1,200 a year? (Don’t give up coffee just yet; here are 16 ways to save money on coffee!)
Think about how those small amounts of money we spend daily add up to significant amounts. If those few dollars are invested instead, it can easily become a favorable retirement nest egg.
Reduce Living Expenses
Depending on where you are in your career, you may be able to move to a location that has a lower cost of living. The annual Cost of Living Index lets users compare various locations in the U.S.
While it charges people to access the data, spending a few dollars to save thousands might be a good investment. The 2023-2024 US News List for Real Estate identified Hickory, NC as the most affordable place to live in the U.S.
Likewise, some other living expenses are things like healthcare. You need to plan for retirement healthcare and make sure you can afford quality medical care.
Delaying your retirement is another way to reduce the amount you will require post-retirement. The Social Security Administration website provides a retirement planner that can help you better understand the best age for you to start drawing benefits.
You’ll tend to receive more as you delay the date to start drawing benefits.
Under the current act, you are eligible to draw benefits at any time between ages 62 and 70, the premise being that if you start early you will receive a lesser amount over a longer period and conversely, if you start later you will receive a greater amount over a shorter period.
Don’t underestimate how much it will cost for you to live comfortably as a retiree. Medical costs, home maintenance, travel and leisure, and family support all contribute to the costs of living as a retiree. And as you see around you, those costs are rising each year.
Planning is the key to being able to meet both the needs of living as a retiree and being able to enjoy your retirement. It is never too soon to start planning for the day you find yourself as a retiree; you can also never start saving for retirement too late.
Earn more money now to ensure your continued financial existence, especially if Social Security’s engine runs out of gas before you do.
Calculate How Much Social Security I Will Get
The Social Security Administration has a Quick Calculator that doesn’t look at your individual earnings as reported to the SSA. You can use that to make an estimate of the payments you would be due in retirement.
If you want to know exactly what you would get in retirement from Social Security you need to use the Retirement Estimator.
Bottom Line: Is Social Security Failing? Understanding Your Benefits
The financial future of Social Security is uncertain, with projections showing depletion by 2033. An aging population with increased life expectancies and fewer contributing workers are primary contributors to this potential shortfall.
For those approaching retirement, proactive steps such as increasing savings, reducing daily living expenses, and potentially delaying retirement can bolster personal financial security.
While government assistance may be questionable in the future, individual planning and foresight are essential.
Using tools like the Social Security Administration’s Quick Calculator and Retirement Estimator can provide a clearer picture of potential benefits. Prioritize personal retirement strategies to ensure a comfortable future.