Say Happy Birthday to Social Security then start saving more

Say Happy Birthday to Social Security then start saving more

Come August, it will be 80 years since the passage of the Social Security Act. Proposed and passed under the Administration of Franklin Roosevelt in 1935, this income safety net has served hundreds of millions of Americans. By the end of the year, just over 60 million Americans will be receiving benefits; about 18 percent of the nation’s population. Has it fulfilled its promise?

As President Roosevelt said of the program, “The Act does not offer anyone, either individually or collectively, an easy life–nor was it ever intended so to do. None of the sums of money paid out to individuals in assistance or in insurance will spell anything approaching abundance. But they will furnish that minimum necessity to keep a foothold; and that is the kind of protection Americans want.”

Part of the president’s vision was to minimize the periods of economic insecurity that were largely beyond the control of common citizens – the economy, war, disability, etc.

By those measures, the act has been the success that was envisioned. I recommend reading the history of Social Security and frequently asked questions on their web site.

There are a couple of troubling points, however. If Social Security payments are just the minimum you need to get by, you’ll need a lot more in savings to maintain your current lifestyle – a LOT more.

There are the millions of Americans who are not saving enough to be prepared for the retirement they may envision – the one their parents may be enjoying right now. Many financial advisers suggest your retirement income should be about 80 percent of the annual wages you earn before you begin drawing retirement benefits.

If you and your spouse expect to make an annual household income of $75,000 during your last working years, your pre-tax income in retirement should be $60,000 per year adjusting for inflation. That means having approximately $944,000 in retirement savings. Given the fact that Americans are living far longer than many would have imagined, that means having enough socked away to draw on for roughly fifteen years at minimum.

Here are recent estimates of 401k savings by age group from Fidelity and Vanguard data:

  • Gen Y (22-34) $16,500
  • Gen X (35-48) $63,600
  • Baby Boomers (50-67) $129,000

According to the blogger, Financial Samuri, today’s average 35 year old should have between $218,000 and $350,000 socked away and earning about 5 to 6 percent annually.

So what should both the young and aging be thinking about to improve their retirement income and security?

  • Whatever you’re currently saving, save even more in a qualified retirement plan such as an Individual Retirement Account (IRA) or company 401(k) (also known as a 403(b) plan in the public/non-profit sectors). You’ll want to talk with a qualified financial advisor to determine not only how much to put away but also what kind of retirement plan works best for your age.
  • Contribute enough to your 401(k) to earn your employer’s maximum match. When an employer contributes to your retirement plan, it’s like getting a raise.
  • Pay off your debts. If you’re young and carrying a hefty college loan payment, start with a budget that cleans up debt as quickly as possible
  • a solid but used car, if you even need one
  • at home for as long as you can but contribute to household expenses
  • If you expect to move due to likely job transfers, rent a home or an apartment
  • If you buy a home, go for the worst house in the best neighborhood and put in a lot of sweat equity to improve the property’s value

Create a second or third stream of income by working part-time, starting an after-hours business or making your avocation (art, music, hobbies, antiques, etc.) an income source

  • If retirement is near, think about living with your children. Building an addition to their house now can give them extra living space until you move in and ease the burden of construction costs while you have a working income. Be sure to consult an attorney, however, if you’re entering into an agreement with your family members. The misery of misunderstandings and resentments are never worth the expected financial benefits.

Having money creates options and can help make life enjoyable and interesting. The sooner we achieve our financial goals for the life we wish to lead now and in retirement, the more enjoyable those years in retirement will be.

Request a Free Insurance Quote