Social Security Facts You Must Know…and What's the Fix
By Eliseo "Jojo" Prisno, CRPC, MS
Chartered Retirement Planning Counselor
A few months ago in one of my talks in Washington, several of the folks who attended when the Q&A was opened focused their questions on the current state of our social security system. Trying to find out for themselves if they can still bank on this entitlement program when they fully retire. Over the years a lot of uncertainties had plague our retirement system's financial standing which bring anxieties to futures retirees, specially those banking on the system once they step into W-2 independence.
A few weeks ago, I read a position paper from Motley Fool, a research firm I subscribe to, stating the current facts of the social security program; and I'd like to share them to my readers. The following are key points we must know:
Social Security: 5 Facts You Must Know
Social security is a complicated program, but you cannot afford to NOT know everything you should about your benefits. But it can be hard to get the information you need in order to make the most informed decisions for you and your family.
In the TOP 5 list below, The Motley Fool's Financial Planning Team reveals five essential but little known facts about the Social Security Program and how it will affect millions of Americans. Although most people just expect Social Security to be there for them when they retire, they could be wrong – and by then it could be too late.
Number 5: Social Security is Massive
In 2014, over 59 million Americans will receive Social Security. Among them are:
•38 million retired workers
•9 million survivors and dependents
•11 million disabled workers and dependents
Number 4: The Elderly Could Not Survive Without This Program
Many elderly Americans heavily rely on Social Security; it's the major income source for most older Americans. In fact, 9 out of 10 people age 65 and older receive Social Security benefits, which sometimes comprise 38% of income. Even more important, half of married couples and three quarters of singles get at least half their retirement income from Social Security.
Number 3: The workforce is shrinking
Demographics are not in our favor, as fewer workers support more retirees. In 1950 there were 16 workers per Social Security recipient. In 1960 there were 5 workers per recipient. By the year 2033, there will only be 2.1 workers per recipient.
Number 2: The Numbers Just Don't Add Up
Social Security relies on its trust fund in order to cover shortfalls between taxes paid and benefits paid. The trust fund is projected to run out of money in 2033. Once that happens, retirees can only expect to receive about 75% of the benefits they should have received, had the fund not run out of money.
Number 1: The #1 Way to Increase Your Benefits
Every year after your full retirement age that you wait to claim benefits will boost your annual payouts by another 8%, until you reach age 70. Waiting to take benefits at age 70 will give you 32% more in benefits than if you took them at age 66, and 76% more than taking them at age 62. If you can afford to delay benefits until age 70 and if you live past age 82, you will receive more in lifetime income from Social Security than if you wait until full retirement age.
Our wealth is in immediate danger and the government needs our money – mostly for Social Security gaps explained above. This scenario will surely raise our current tax levels. What's the fix?:
Basically I recommend two things:
1) To augment your future retirement income, take charge and be proactive. Start "buying" your retirement today by putting away something every year. Use all the possible tax deferral programs available: from 401K/403B plans to ESOP (Employee Stock Ownership Plans) to IRA's (Individual Retirement Accounts); use these and by doing so you can take advantage of the following: tapering your income tax (pre-tax contributions), availing free money (employer's match), tax deferred growth (freedom from dividend and capital gains taxes) and disciplined savings plan (IRS qualified accounts). All these advantages translate to technically getting almost half of your retirement nest egg for free (tax credits, matching and growth). This is a no brainer.
2) Learn the power of compounding. In finance we have the rule of 72 which simply translates to the future value of money. The formula is simple: if you divide 72 by the interest rate or growth rate, this is the number of years you can double your money, i.e. if your investment is earning 7.2% per year (72/7.2=10 years); it would take 10 years to double your principal. 20 years to quadruple (4X) it. Say, if you have 10,000 now, in 10 years it will be 20K, another 10 years it will be 40K. Note that the S&P 500 (the major stock market index) the past 100 years had given us at least 11% average growth per year; the past 25 years about 11.3%. This simply means that using the stock market as an investment vehicle you can potentially double your money is 6 years, 4X in about 12 years (use the same formula if you are invested in bank products that pays less than 2%, it will take you more than 30 years to double your savings).
Be smart and be well informed and if you want to ensure solid advise, work with a financial professional.
About the Writer: Eliseo Jojo Prisno is a Chartered Retirement Planning Counselor and for over a decade has managed the wealth of select families and business owners. He founded P/E Capital Investments in 2009 and is the current Managing Director and Senior Investment Advisor of the firm. Mr. Prisno also manages a Fund of Funds Portfolio with Ameritas and runs an All Equity Growth and Income Portfolio in Separate Accounts via E-Trade Financial. If you have questions or desire a complimentary analysis of your retirement readiness, email j.prisno@PEcapitalinvestments.com or call toll free to
1-888-929-2825 or visit our page on facebook or our website: www.PEcapitalinvestments.com.