Posted on 30 Apr 2012
Based on reports last week from the folks responsible for the Medicare and Social Security Trust Funds, Americans—especially those under age 40—need to reconsider their retirement plans.
Absent major action by lawmakers, the annual reports say the combined assets of the Old-Age and Survivors Insurance and the Disability Insurance trust funds will be exhausted in 2033—three years sooner than was projected last year. The Disability Insurance fund will be exhausted in 2016, two years earlier than last year's estimate.
Come 2033, just 21 short years from now, Social Security will pay just 75% of scheduled benefits, just 75 cents on the dollar. So, instead of getting, say, $1,000 per month from Social Security, you'll get $750 per month come 2033.
The trustees forecast that Medicare's hospital insurance fund would begin to run out of money beginning in 2024.
So what adjustments do you need to make to your retirement plan given these latest reports?
If you're already retired, don't worry. "The advice I give people is that if they are already retired, I see little risk to benefits," says Jeffrey Brown, a finance professor at the University of Illinois at Urbana-Champaign. "No politician will cut for current seniors."
But for those who plan on retiring in 2033 and beyond, the advice is much different.
Anyone younger than, say, 41 today should plan to get just 70% to 75% of promised benefits, Mr. Brown says. Unfortunately, there's no silver bullet to make up the difference.
Those individuals should consider the usual strategies and tactics: increase the amount they save toward retirement; invest differently, perhaps with an emphasis on creating guaranteed inflation-adjusted income not unlike that provided by Social Security; delay retirement; work part time in retirement; delay taking Social Security; and consider any and all ways to turn assets into income—be it home equity, the cash value in a life-insurance policy or the collectibles in your curio cabinet.
Of all the bromides, however, delaying collecting Social Security is perhaps the most important. The average American who optimizes when to claim Social Security can "make their savings last two to 10 years longer," says Bill Meyer, president of Retiree Inc.
What's more, what's good for you is also good for the Social Security Trust Fund. "Delaying or optimizing Social Security will help lessen the near-term burden on the Social Security liabilities," Mr. Meyer says.