Recent news headlines have many Americans worried, suggesting that in the future, monthly Social Security checks may be smaller than expected. According to a troubling report recently issued by the federal government, Social Security payouts will exceed incoming contributions in 2020. As a result, Social Security's reserve fund will be depleted in 16 years and monthly checks will be smaller than currently scheduled, unless Congress steps in.
This news should give working Americans cause for concern, advises Joseph F. Delano, Registered Principal/LPL Financial and owner of Delano Financial Management in Marlborough, MA.*
“I would advise people to take this situation very seriously, all the the more so if nothing is done to change the equation," he said.
There are steps you can take to offset this potential income loss. First, though, keep a few points in mind:
This does not mean that Social Security will disappear. Fears that Social Security won’t be there when you retire, while understandable, are not accurate.
When the balance sheet turns negative, “It certainly does not mean that retirees will receive nothing,’’ Delano said. The current estimate is that beneficiaries are expected to receive about 80 percent of what was promised through 2090.
Congress could take action to offset these losses. But this is no guarantee, Delano said. “Congress is showing no signs of wanting to tackle this ‘third rail’ of politics, and of course the longer they wait, the harder it will be to correct the problem.’’ It will also be more expensive. “At some point the cost could be unmanageable given the gargantuan deficits and national debt,’’ Delano said.
Now more than ever, you need to take your financial future in your hands. “If we can’t count on the government to keep their promises to retirees, we have no alternative but to count on ourselves,’’ Delano said. “As Americans, we like being self-sufficient anyway.’’
Here, some strategies to make sure you cover your bases:
You work hard for your money. Make it work hard for you.
“Put your money to work in sensible portfolios of diversified investments that are expected to outpace inflation,’’ Delano said.
Look into target date funds. With your targeted retirement date as a goal, your money is invested in a diversified portfolio with investments that get more conservative as your retirement date approaches.
“Nationally we are seeing a fast-growing trend toward these types of retirement vehicles,’’ Delano said.
Save, save, and save some more.
Really analyze your spending choices today, especially in light of a potential reduction in Social Security benefits tomorrow.
“Are we smarter to give our hard-earned money to the coffee vendor at $4 a pop, or to cable TV companies, or should we invest it for our future selves?’’ Delano asks his clients.
Sure, belt-tightening can be uncomfortable at times, but you can get creative about substitutes. For example, your could invest in an espresso machine or even an inexpensive milk frother to make your favorite coffee drinks at home or take up a low-cost hobby or sport that gets you away from the television screen. Think of it as ensuring a firm financial future, one that, unlike Social Security, lies within your control.
Keep track of the Social Security numbers when deciding when to retire.
For many years, 65 was the age you could retire with full benefits. Today, your full retirement age depends on your year of birth.
For Americans born between 1943 and 1954, the full retirement age is 66. Full retirement age gradually increases until it reaches age 67 for anyone born 1960 or later.
You can start collecting Social Security benefits at age 62. But if you do that, and your full retirement age is 67, your monthly benefit amount is reduced by about 30 percent.
For Americans with a full retirement age of 67, the reduction for starting benefits at age 63 is about 25 percent, age 64 is about 20 percent; age 65 is about 13.3 percent; and age 66 is about 6.7 percent.
Conversely, Americans can earn more in monthly benefits if they work beyond age 67 up to age 70, when benefits are capped. Continuing to work may also increase your benefit amount because each year Social Security automatically recalculates to determine if your most recent earnings can replace a period when you earned little to no money. (Learn more about what you can expect from Social Security when you retire with their Benefits Planner.)
So if you're worried about all the doom and gloom about the future of Social Security, work as long as you can while continuing to save as much as you can. Also schedule regular meetings with your financial advisor to keep up with any changes to your Social Security benefits and how they will affect your future.
*Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. Hanscom Federal Credit Union is not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using Hanscom Investment Services, and may also be employees of Hanscom Federal Credit Union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, Hanscom Federal Credit Union. Securities and insurance offered through LPL or its affiliates are:
Not Insured by NCUA or Any Other Government Agency / Not Hanscom Federal Credit Union Guaranteed / Not Hanscom Federal Credit Union Deposits or Obligations / May Lose Value