Understanding Social Security's Role in Retirement
Depending on who you ask, you'll hear some people claim that in just a few decades Social Security will be nowhere to be found, will be means-tested, or may even be plugging along just like it should. If you ask me, I wouldn't put too much faith into Social Security if you're still relatively young. Whether or not it will be there, or how much it will pay out is anyone's guess, but that doesn't matter. Social Security was never meant to provide someone's entire retirement, so it should have little effect on your long-term planning and saving goals.
Like health insurance, which was never intended to pay all of our medical expenses, but rather to share the cost and prevent financial hardship caused by catastrophic illness, Social Security was never intended to be the only source of retirement income. In fact, for the average person, Social Security benefits will be approximately 40% of what you were earning before retirement. Do you think you could live on 40% of your income with the constantly increasing health care costs, taxes, and inflation? I didn't think so.
Your best bet is to assume the worst, and whatever Social Security you do receive can just be a bonus. That means you should continue to contribute as much as possible into your 401(k)or 403(b) plan through work, or your Traditional IRA or Roth IRA. These investment vehicles put you in complete control so you don't have to hope the government will be there to help you out in retirement.
Comments
This is practical advice. I do have another perspective though. It is really not ridiculous to expect that SS will help with a portion of your retirement because you and your employer (just you if self-employed) have been paying into the system at about 14%. I am aware of how it works, but especially lower wage workers cannot be expected to save a great deal in addition to that. So I think it is misleading to make the comment about relying on govt. It is us, the workers that have been paying into the system.
Furthermore, if SS currently constitutes 40% of retirement income - that is hardly a bonus! While this comment may have been focused on younger workers, those of in between are between a rock and a hard spot.
This simplistic “rule of thumb” type of information glosses over a huge looming crisis. If it takes approximately $1.5 mil to retire (or more) it is hardly realistic that workers trying to raise children on $30k, $40k, even $50k can even approach this goal even with a stock market that produces a decent return and we have no assurance of even that.
The lower wages that this country is experiencing due to global competition combined with asset depreciation (in real estate and equities) along with spiking inflation for essentials (groceries, gas, heating) makes for a discouraging situation and for some, simply hopeless.
Everyone does need to take responsibility for their own retirement, but these types of articles don’t begin to address the problem and are primarily meant for those with the incomes to actually save in a substantial way.
Perhaps it would be helpful for the financial industry to start giving some guidance for those who they don’t make a great deal of money on as a public service to the nation.