87% of workers rely on social security to finance their retirement – but should they be? | Smart Change: Personal Finance
These trust funds won’t last forever, and once they dry up, benefit cuts can be on the table. And these cuts could be substantial. The latest forecasts indicate a reduction of 21%.
The average Social Security senior is raising $ 1,543 a month today. If you lower that total by 21%, the average monthly benefit drops to just $ 1,219, which equates to $ 14,628 per year. Given that the current poverty line for a one-person household is $ 12,880, it is getting dangerously scarce – and explains why today’s workers cannot rely too heavily on social security for the future.
Don’t get caught in a trap
While benefits cuts may be in the future of Social Security, there is no risk of the program being terminated entirely. If you work today, every effort should be made to save well for retirement so that you are less dependent on social security at the end of your working life. This means using an employer-sponsored retirement plan or opening an IRA if you don’t have access to a savings plan for work.
The good news is that if you are fairly young, you have a solid opportunity to build a decent chunk of wealth well in advance of retirement. For example, let’s say you are 40 and plan to retire at 67. This would be your full retirement age for social security purposes. By then, if you put away $ 500 a month and your IRA or 401 (k) has an average annual return of 7% (which is a reasonable assumption if you invest fairly heavily in stocks and then switch to bonds as you age). You will end up at around $ 447,000. That’s a nice sum to make up for lower social security benefits across the board.