As people prepare for retirement, social security is one component of the equation that will be used to determine the amount of retirement income one will have to live on. If saving and planning has come natural, social security can be viewed as a supplement for your retirement. If you have struggled in saving and properly planning, your dependency on Social Security retirement income will likely be greater. For many of us, retirement will be a substantial time in our life, and planning on how we are going to pay for it is increasingly difficult. With that being said, this is just one of many factors to consider when planning for retirement and more importantly to address your own situation with a professional independent advisor.
To receive a report on your estimated social security retirement benefits, visit www.socialsecurity.gov/myaccount . Once you have created your account you can then download your estimate.
I recently reviewed Social Security benefits and I noticed something new. On the page that lists your individual estimated benefits, there is an asterisk. Here is what is says:
* “Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time. The law governing benefit amounts may change because, by 2033, the payroll taxes collected will be enough to pay only about 77 percent of scheduled benefits.”
The social security administration is saying that the retirement payments citizens have been paying into for their entire work life, is underfunded. If you are between 10 and 15 years away from collecting a social security retirement check, you may want to consider discounting your estimated payments for the purpose of planning your durable retirement income.
In addition, it was reported that the federal government’s safety net program for private pensions is running a near $62 Billion long term deficit. The Pension Benefit Guaranty Corp. (PBGC) has two separate insurance programs, one for multiemployer plans and a larger one for single employer pension plans. The multiemployer plans, which has suffered the most, insures benefits for more than 10 million workers.
The agency said that the projected long term deficit in its multiemployer program rose to 42.4 billion, compared to 8.3 billion last year. The increase is largely due to the fact that several large multiemployer plans are now projected to become insolvent within the next decade. Without a significant bailout, the multiemployer federal safety net will likely go bankrupt according to the agency’s annual report.
So here are a few questions for you. When you are planning income for retirement, and a portion of that income is in a government insurance programs like social security, a government insured pension or it is insured by PBGC, how likely is it that you can depend on getting the full amount that you are expecting? Do you know the financial strength of your pension? Are you depending on income from a source that is underfunded?
What should you do? Consult with an independent financial advisor that has a solid reputation for problem solving and is skilled at income distribution. This could be different than the advisor you worked with during the accumulation phase of your life.
Work on developing a plan that makes sense and fits your financial situation. While I do not believe that all social security benefits or all of the pensions will become worthless, I do believe it is likely that they will become vulnerable to negative adjustments in the future.
If you would like to go over your options, you can call my office to set up a no charge, no obligation appointment.
Forest Hills Financial Inc.