David Lerner Associates: Will Social Security Support You In Retirement?

For example, most women and minorities were originally excluded from receiving Social Security benefits. But one thing that hasn’t changed is the intention that Social Security provide a financial safety net for retirees, says David Lerner Associates Branch Manager Jonathan Hurwitz — not serve as their sole source of retirement income.

While Social Security is the largest source of income for most elderly Americans today, it was never intended to be the only source of income for retirees, the Social Security Administration stresses. “Instead, Social Security has been designed to provide supplemental retirement income, in addition to other savings, investments, pensions and retirement accounts,” says Hurwitz.

However, it appears that some Americans today may be over-relying on Social Security as their primary (or even only) source of retirement income. A survey recently conducted by Wells Fargo determined that Social Security continues to be a strong component of retirement planning for middle-class Americans. In addition, more than 70 percent of the respondents said they would prefer to delay collecting Social Security benefits in order to receive higher payments.

The amount of money that Americans are saving for retirement is another indication that some people may be over-relying on Social Security. According to the Employee Benefit Research Institute, only 58 percent of Americans are saving any money at all for retirement. Among those who are saving, 60 percent have less than $25,000 in retirement savings (not including home equity or defined benefit pension plans).

According to the Social Security Administration, the average monthly Social Security retirement payment today is $1,261 — just slightly more than minimum wage for one month of full-time work. “This may not be enough money to maintain a pre-retirement lifestyle, even if you assume lower expenses during retirement,” says Hurwitz.

For example, consider Bob and Brenda, a married couple who are each 63 years old and plan to retire at 65, when they will be eligible for the average monthly Social Security benefit of $1,261. They currently have a combined annual after-tax income of $60,000, which enables them to live a comfortable lifestyle.

The good news is that they will have paid off their home mortgage when they turn 65, so they anticipate needing about 70 percent of their pre-retirement income (or $42,000) to maintain their lifestyle. But their combined annual Social Security benefit is only going to be $30,264, leaving them about $12,000 a year short. Worse yet, they have only accumulated a combined total of $30,000 in their IRAs, which will be depleted in less than three years if used to make up the shortfall.

Questions about the future solvency of Social Security are another reason it might not be wise to rely too heavily on Social Security benefits as a sole source of retirement income. According to the Social Security Administration, the Social Security system “is facing serious financial problems, and action is needed soon to make sure the system will be sound when today’s younger workers are ready for retirement.” Without changes, in 2033 the Social Security Trust Fund will be able to pay only about 78 cents for each dollar of scheduled benefits.

“Given facts like this, it may be wise to save additional retirement money in a qualified retirement plan,” says Hurwitz. “This could be an employer-sponsored 401(k) or Simplified Employee Pension plan (SEP), or a traditional or Roth IRA. But it’s up to everyone to establish such a plan themselves.”

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.