Social Security was never meant to pay for every American’s retirement.
Now that people are living longer and birth rates are declining, there’s a good chance major changes to the way the program is funded will decide how much the government old-age pension plan pays future generations of retirees.
“The original plan was for it to be a safety net program for people who really needed it,” says University of Colorado economist Richard Wobbekind. “But over time, because we all have contributed to it, we’ve begun to feel it is an entitlement.”
For current retirees and near retirees – people 50 and older – Social Security probably won’t change much.
However, if the system is revamped as proposed, to include 401(k)-style investments that can be drawn down to nothing, workers will have to take a more disciplined approach to saving and spending during a retirement that could last 20 years or more.
“There are ways to do it,” Wobbekind says, “but whether people will make the correct decision based on their longevity, that’s another question.”
And figuring out how much you’ll need to retire comfortably is yet another question.
Financial planners generally advise that households sock away enough to assure income of 70 percent to 80 percent of monthly preretirement earnings, although a recent Gallup Poll suggests that most people think they can live well on an amount closer to 60 percent of what they earned before retirement.
Rutgers Cooperative Extension developed a financial worksheet to help people figure out how much capital they should amass to live well in retirement.
To run the numbers yourself, click to and print it out.
– Dana Coffield
