Social Security – Will it be There for You?

Well, the answer to the title question is … Maybe!  Depends on how you are thinking about Social Security. If you consider the original intent for social security the answer is YES. It will probably be there to supplement your retirement savings.  If you consider the way many, if not most retirees use Social Security, the answer is NO! Social security is only supposed to supplement your income. It is not designed to provide your entire retirement income, so you need to save for retirement.

It’s up to each one of us to stop relying on the government to take care of us in retirement.

There are approximately 3,650,000 boomers who will retire each year for the next 10 years, which will put a huge crunch on Social Security and Medicare.

Starting in 2018, Social Security will begin to draw down trust fund reserves to help pay for benefits. Although Social Security has a long-term financial shortfall that must be closed, the program’s combined trust funds will not be depleted until around 2034, which gives policymakers time to develop a carefully crafted solvency plan.

To eliminate Social Security and Medicare would be political suicide for Congress, but Congress may be forced to cut benefits, raise taxes, increase the eligibility age, or some combination of the three to cover the cost of the program.

For the 52% of Americans who rely on Social Security for more than half their retirement income and the 25% of retirees who get more than 90% of their income from the program, that would be a disaster.

The average retirement savings in America is $60,000 and the average Baby Boomer has saved $103,000 for retirement. The projected lifespan in the US is about 85 years. If you retire at 65 and live till 85, your retirement savings has to last for 20 years. Eliminate or decrease Social Security benefits and that $60,000 won’t last very long.

If you are younger than 60, you need to be saving as much as possible for retirement. If you retire at age 65 you will need to have saved about 8 times your annual salary to cover your living costs in retirement. The chart below shows how much you should have saved for retirement at age 65 based on your salary:

• $50,000 x 8 = $400,000
• $75,000 x 8 = $600,000
• $100,000 x 8 = $800,000
• $125,000 x 8 = $1,000,000

Are you saving enough???

Proverbs 21:20 tells us “Precious treasure remains in the house of the wise, but the fool consumes it.” Are you consuming your treasure?

We have had 10 years of a bull market and we don’t know when it will stop, but we can guarantee that it will stop at some point and we’ll be in a bear market. Everybody needs to realize this and be prepared.

What are your plans to make sure that you are prepared for a market downturn? If you are already retired, how much money do you have access to in liquid assets, which won’t devalue during a bear market? You want to be in a position where you don’t have to sell depreciated assets when the market decreases. If you are within 5 years of retirement, you should be thinking the same way.

If you have 10 or more years before retirement, what will you do to take advantage of reduced stock prices? Will you be buying or selling?

As we approach the inevitable bear market, you want to pay off as much of your credit card and consumer debt as possible and increase your emergency fund to a minimum of 6 months.

You probably can’t do everything at once and that’s why it’s so important to have a balanced budget, manage your spending and keep debt to an absolute minimum at all times.

We don’t know when the bear market will begin, so it’s important not to delay. Take advantage of the time you have prior to the bear market to get your finances in order. If you’re in good financial shape when the bear market hits, you might be able to take advantage of it and continue to dollar-cost-average your investments and buy more stock at reduced prices.

Since 1934 there have only been four bear markets when the average of the S&P 500 dropped more than 20%. The most recent was in 2008 when it declined 37%. Despite bear markets, more good than bad has prevailed. In a look at five year rolling time periods it’s 76% up, 24% down. Looking at ten year rolling time periods, it’s 88% up, 12% down.

In order to be prepared for those inevitable downturns, you should plan on having 12-18 months of liquid investments if you need would need to live off your savings. Note we didn’t say everything should be liquid, only the money you may need to live on for one to two years. The rest should stay invested per your normal plans because the first six months of recovery can often create the largest gains and if you are not invested you will miss out.

We need to have a Joseph mentality. Joseph saved during seven years of great plenty (Genesis 41:29) in order to survive during the seven years of great famine (Genesis 41:30.) Like Joseph, we need to prepare for the future by saving.

We also need to be diversified in our investments. Money can be lost on any investment. Stocks, bonds, real estate, gold—you name it—can perform well or poorly. Each investment has its own advantages and disadvantages. Since the perfect investment doesn’t exist, it is important to diversify. “Make seven or eight portions; you know not what misfortune may come upon the earth.” Ecclesiastes 11:2

The wisdom of diversification applies to both where we investment AND to how we plan to use Social Security.

Join us on the Compass Catholic podcast for more about your retirement future and Social Security.