Social Security is Not a Retirement Plan Kellyne Bode COM/156 August 1st, 2010 Tara Rodriguez Axia College of University of Phoenix Social Security is Not a Retirement Plan If you plan on retiring when you are 65, make sure you are ready. Planning for retirement is very important and the earlier you start, the more stable you will be when the time comes. You may believe Social Security will be enough to cover your needs when you retire but given the certain circumstances regarding Social Security today, you may want to think again about your future finances.
Think about what kind of lifestyle you want to live when you retire. Setting financial goals to meet you retirement expectations is very important. Breaking down the everyday expenses like the costs of living, including bills, food, rent, or mortgage. Family costs like paying for your children’s college education and other costs of their well being, possibly supporting your parents, or trust funds for family members and heirs. Then there are the extra retirement costs like vacations, hobbies, and entertainment.
Think about how expensive these costs are today, and how they are only going to increase in price over time. With the inflation rate increasing three to four percent every year (Baijtelsmit & Rastelli, 2008), there is no possible way Social Security can finance all your retirement needs if you plan on living comfortably and here is why. Social Security is already has a $12 trillion dollar unfunded liability and it is foreseen that the number is only going to grow with time (Social Security PRAs). Even people who are retired cannot solely rely on their personal Social Security benefits.
I have done two interviews with two retirees. Jerry Weinburger (personal communication, July 2nd, 2010) who retired 10 years ago is 72, lives on his own, pays all of his bills and is fairly happy. He does receive Social Security benefits. I asked him how much money he receives in benefits and how much money he pays out every month. The difference in numbers is a tremendous gap. His Social Security benefits barley covers half of his expenses. I then asked him how he manages to stay retired. He informed me that when he was in his 30s, he started investing toward retirement by saving any money he could.
He also obtains a retirement pension through Oregon Department of Transportation (ODOT), his former job. Jerry said that even though he paid into Social Security for over 40 years, he knew that it would not be enough. For someone who has paid into the system for 40 years, he should be able to receive the maximum benefit amount, but because of the system and his retirement plan, he is unable. In my second interview with Gloria Miller (personal communication, July 3rd, 2010) a 68-year-old who retired in 2007 is very healthy and active, and an avid traveler, says her Social Security benefits do provide her retirement needs.
She owns her own home that she has lived in since she was in her mid-twenties. I asked her how she pays her mortgage every month and she said that her house is paid off so that eliminates a big financial burden. She is a widow so she is entitled to her husband’s Social Security benefits as well. I then asked her if she were not able to receive her husband’s benefits, would she still be able to live comfortably. She replied no because she only gets around $900 a month, which she says would only cover her essential monthly costs.
She depends on the extra money from her husband’s benefits to pay for her retirement needs like entertainment, putting money away for her grandchildren, and of course, her traveling expenses. Though she does live a good life with her only income being her Social Security benefits, she would not be able to without her husband’s benefits as well. It is true that retirees can receive their spouse’s benefits, but what about the retirees who have not been married or may get a divorce before they retire? Why has the stability of Social Security come into question lately?
According to Social Security PRAs, ““Social Security has become a bad deal for younger Americans. Today, most young workers are likely to get less back in retirement benefits than they paid into the system. In 2017, the program runs into the red as benefits paid exceed contributions. ”” Even a current retiree, Jerry Weinberger, is not getting back the full amount he has paid into the system. If a current retiree is not getting paid enough, it most likely will only get worse for the younger retirees to come.
This information should be strongly considered for the future. The younger generation will have to pay higher taxes just to keep Social Security afloat. It is important to understand that Social Security is a “pay as you go” system. According to (Baijtelsmit & Rastelli, 2008), “”Current payroll taxes are used to fund current benefit payments. When payroll taxes collected exceed the total being paid out in benefits to current retirees, as has been the case for the past several years, the tax inflows currently are much larger than benefit payments to retirees. ” In spite of this information, the Social Security Administration is predicting that the program will suffer major depletion with the impending retirement of the Baby Boomer generation. This does not include the issue that the federal government will have to figure out how to pay for the IOUs to the Social Security trust fund. In 20 years when most of the Baby Boomers have retired, there will only be two workers contributing to the fund for every retired Boomer (Baijelsmit & Rastelli, 2008). The best way to plan for a comfortable retirement is to make a retirement plan and start saving any money you can now to prepare for your future.
Remember to take all expenses into account, what kind of life you want to live, and the issues going on with Social Security now. There is a strong possibility that they are only going to get worse because the fate of the Social Security system is unknown. Come up with set plan now before it is too late and you have to depend solely on Social Security. References: n. d. Social Security PRAs. http://www. freedomworks. org/issues/social-securitypras. Information received July First, 2010 Baijtelsmit. V. L. and Rastelli. L. G. 2008. Personal Finance: Managing Your Money and Building Wealth. Hobroken. N. J. Wiley. .