More retirees rely on social security: AARP
When Social Security turns 90, 65% of retirees are currently dependent. The survey reveals that public confidence in its future continues to decline.
Straight Arrow News
If you follow Social Security news, you may have heard recently that the program is even closer to the possibility of reducing benefits. And unfortunately, that’s not just a rumour.
The latest Social Security Trustees report included a rather disastrous update. The program’s total trust fund is expected to run out by 2034. When that happens, Social Security will need to cut benefits to a 19% adjustment, with retirees typically leaving only 81% of their monthly checks.
If you are still working, we may assume that inability to collect full social security benefits could seriously promote your retirement. However, once your career is over, there is another factor that can cause you more financial pain.
This mistake can cost you more than reducing social security
Clearly, the idea of losing 19% of future social security checks is scary. However, if you don’t properly save your job in order to retire, it can become even more frightening.
One thing that comes to life with Social Security is that it will only replace about 40% of pre-retirement wages, assuming that you are getting a fairly typical salary even if your benefits are not reduced. It is true that now retirees can do more with less money than they need when they are at work. However, the general rule of thumb is to expect to need 70% to 80% of your previous income after retirement, not 40%.
In some contexts, today’s typical Social Security recipients earn around $2,000 a month. If you are a higher income, you may get more.
But either way, you can’t expect these monthly profits to cover all your retirement needs. So, if you don’t make an effort to save money for retirement, Social Security could be a really bad place without reducing benefits at all.
To be clear, social security may not need to move forward with reduced benefits. The finances of the program are in sweep, but lawmakers can look at different ways to avoid drastic cuts in profits.
But at that point, it’s still up to you to help you avoid struggling. Relying solely on social security is not a good idea no matter what happens.
Slowly and steadily win the race
The idea of building a nest egg for a substantial retirement may seem daunting. But if you give you enough time to do it, you might be surprised at how seamlessly those 401(k) or IRA contributions fit into your budget.
Imagine starting savings for retirement at age 30 and giving $300 a month. If your portfolio offers an annual return of 8%, then this is just below the stock market average, you can sit at around $620,000 by the age of 65.
Let’s say we want to limit withdrawals from our savings to 4% per year. This is something experts have long recommended. It gives you about $25,000 in revenue. This is a great supplement to your social security and a great cushion for benefits if they come.
As far as social security cuts go, it’s too early to know what will happen. But even if lawmakers can prevent them, you need extra retirement income, or period. The earlier you start saving, the more you will feel confident that you will be able to cover your financial needs in the future.
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