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A 20% Pay Cut? How We Can Avert the Coming Social Security Nightmare

What percentage of your retirement income will be from Social Security? It’s a question most of us haven’t thought about, but chances are if you have, you certainly factor in Social Security as a large contributor to your monthly retirement and with good reason; you’ve paid into it your whole life and are entitled to it.

Here’s the scary part: the Social Security Program in it’s current state will not be able to meet it’s requirements within 15 years. Worse, nearly 50% of American’s are not participating in their employers retirement plan –which means they may not have a retirement plan at all.

This spells impending disaster for Americans when they eventually realize they will not be able to retire as planned. They may have to spend their golden years working and scraping by instead of enjoying a life of leisure and travel enjoying time with family or exploring new hobbies.

Currently there are over 10,000 baby boomers hitting retirement every single day, and half of all retiree’s receive more than half of their monthly income from Social Security, with an average benefit around $1,200. If changes are not made to the program, “people are going to have to take a 23% cut” from their monthly Social Security says former North Dakota Senator Kent Conrad. Conrad co-chaired a 19 member bi-partisan commission on retirement who’s analysis found that in order to prevent this future breakdown it’s going to take ‘many steps’ to correct –including adding new revenue along with benefit savings.

As we stand by and watch the slow deterioration of this important social program, we have to remember that we’ve been here before.

The net cash outflow in 1975 confirmed the Social Security program was in trouble. It wasn’t until 1983 when Ronald Reagan passed the Social Security Amendments which created of the taxation of Social Security benefits, as well as increased the full retirement age. It was an unwelcome band-aid that has so far kept the program going until now. The year 2034 is currently the program’s expected cash exhaustion date. I know. Yikes.

Our lawmakers have 16 years to find a solution to repair Social Security according to the 10-year model found in the 2018 Trustee report. You see, the money we pay into Social Security isn’t immediately paid out to benefit recipients, but rather invested in safe, interest-bearing bonds which creates income on the reserves. Interest earned on Social Security asset reserves has so far kept the program alive, but not it’s not enough for 2034 and beyond.

What can be done?

Support fundingourfuture.us, an organization that works with individuals and our policy makers in Washington to  strengthen retirement policies and bring attention to the needs of current and future retirees. 

You can and should write your representatives, and let them know they need to be working on this now, not waiting until the last minute. You can find yours here   

Most importantly make a plan for your retirement that doesn’t include social security, the earlier in life the better.

Personal Capital is a fantastic tool that gives you the ability to track your net worth, manage income and expenses, find hidden fees in your investments, and run various calculations to plan for different retirement scenarios. For example, run a scenario that would what would it take to be able to retire 5 years early. 

About Deran Jay

Thirty years experience in business; Publishing, Management and Investing. Writing for themoneybeat.com allows me to blend my experiences and passions together to help others build their financial future.

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