We constantly hear people wonder whether Social Security will still be there when they retire. The question comes not just from people in their 20’s, but also from people in their 40’s and 50’s as they begin to think more about retirement. It’s a fair question.
Some estimates show that the Social Security Trust Fund will run out of money by 2034. Medicare is in even worse shape, projected to run out of money by 2029. That’s not all that far down the road.
So how do we plan for this?
The reality is that Social Security and Medicare benefits have been paid out of the U.S. Treasury’s “general fund” for decades. The taxes collected for Social Security and Medicare all go into the general fund. The idea that there is a special, separate fund for those programs is accounting fiction. What is true is that the taxes collected for Social Security and Medicare are less than the amount being paid out.
What this inevitably means is that at some point the government may be forced to choose between increasing taxes for Social Security and Medicaid, reducing or altering benefits payments, or going broke.
Another question is whether the benefits provided to retirees under these programs will cover the cost living. Older people spend much more on medical expenses than the young, and medical costs are increasing much faster than the cost of living adjustments in Social Security payments. If a larger percentage of a retiree’s income from Social Security is spent on medical expenses, they will obviously have to make cuts in other expenses – be they food, clothing, or shelter – negatively impacting the lifestyle they envisioned for retirement.
The wise response to these issues is to save as much of your own money for retirement as possible while you are working. There is little you can do about Social Security or Medicare benefits – outside of voting or running for public office – but you are in control over the amount you save and how you invest those savings.
As we face an uncertain future, we advocate that you take these three steps:
- Increase your savings rate.
- Prepare a retirement plan.
- Invest your retirement assets wisely.
If you need help with these steps, give us a call. It’s what we do.