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Don't rely solely on Social Security for your retirement needs. It is an iffy proposition since the percentage of people 65 and older is increasing rapidly.
The Big Social Security Myth: It ensures that were financially secure in our later years.
Fact: Its own financial future is in peril. In other words, dont count on Social Security offering the same financial security in 20 or 30 years as it does for today's retirees.
Its hard to imagine surviving retirement without the comfort of monthly Social Security checks arriving in the mail. Before 1935, Americans did exactly that, however. It took the abject poverty of the elderly during the Great Depression to convince Congress to approve President Roosevelt's plan for basic subsistence payments to senior citizens.
The Salad Days Are Over
It Cuts Both Ways
Times have changed since 1935, and for the worse. When Social Security was started, 16 workers were paying into the system for every retiree receiving benefits. Now, only three workers contribute per retiree and by the year 2020 the ratio will be two to one -- two workers paying in for every retiree taking out. Even with several changes enacted in recent years to address the shortfall, Social Security still can't provide the same level of benefits 20 years from now that it does today.
Charting Your Own Survival Route
The higher your earned income, the more your monthly benefits will be, although these increases are not proportional. For example, lets assume that you are single and your lifetime income inched upward from year to year. If you received $30,000 during your last year of work, your monthly benefits would start at somewhere around $1,100. But if you double your income to $60,000, the benefits only increase about 15% to $1,250.
Benefits provide a minimum level of coverage, but don't expect to live on Social Security alone. The average monthly payment in 2005 was $1,150. Women are particularly vulnerable to lower benefits -- they often leave the work force for periods of time to raise children, and they generally received lower pay than men throughout their working lives.
Get A Social Security Statement
The report shows your estimated annual benefits at age 62, at your "normal" retirement age (65 to 67, depending on your year of birth),and at age 70. These are estimates of future benefits, with an actual dollar amount at that time. If a projected benefit is $1,500 a month at age 65, that may sound terrific to you now because youre thinking of what $1,500 buys today.
Taking Steps To Protect Yourself
Second, take a good look at how your benefit varies according to your retirement age. If you retire at 62, generally you will only get 80% of your benefits at normal retirement age. Conversely, you will get an extra 8% for each year you work past your normal retirement age. If youre married, your non-working spouse will get 37.5% of your benefits if you retire early and 50% at your normal retirement age.
Remember that the normal retirement age is no longer necessarily 65; as of the year 2000, it's begun to rise. Looking at your various retirement benefits, you can figure out the best time for you to start taking Social Security.
Third, decide how much you want to rely on Social Security. The younger you are, the more likely it is that your benefits will be less than projected. As a safety measure, you might assume your actual annual benefit would be 75% of current estimates. Whatever your method, plug that Social Security number into your retirement needs analysis to see how much you will have to save on your own to provide the income you want. Then make a plan to save even more than that, if you can.
Dont Pick Up That Phone
You wont be penalized if you receive incorrect information from the employee and you have proof. If you are not happy with the Social Security Administration's decision about your situation, you can file a reconsideration. You can also ask to have any deadlines waived until your problems are resolved.
Its Your Money
There are several "rescue" plans on the table now, allowing workers to invest some of their Social Security contributions themselves, allowing the federal government to invest some of the programs' billions in the stock market, and making other massive changes to the system. Whatever the outcome, its clear that the days of guaranteed, steadily increasing benefits are over.