MoneySense: Social Security’s Future and How to Prepare


As concerns about Social Security grow, the amount of money that young Americans save becomes even more important. Here’s how you can work with a financial advisor to improve your financial future.

Though never intended to be the sole source of retirement income, many of today’s younger Americans are realizing that when they retire, the size of that monthly payment may be smaller than they anticipated. In fact, according to a CivicScience poll conducted in October 2021, more than 53% of 25-to-44-year-olds doubt that Social Security will be available to them.


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How well-founded are these concerns? According to the most recent annual report from the Social Security Board of Trustees, if no changes are made to the system, the Social Security Administration will be unable to pay scheduled benefits in full and on time beginning in 2034. However, this does not imply that you will receive no money when you retire; according to the report, you will most likely receive approximately three-quarters of your Social Security benefit. The reason for the shortfall is straightforward: the number of people claiming benefits is increasing while the number of working-age people contributing to Social Security through payroll taxes is decreasing.

Many proposals to strengthen Social Security have been floated, according to Gal Wettstein, senior research economist at Boston College’s Center for Retirement Research. Even if a fix is implemented, it is likely that today’s workers will rely less and less on Social Security as a key component of their retirement income strategy. “The money you personally save and invest, especially for younger savers, is likely to continue to play a larger role in determining your financial security in retirement,” says Joe Tantillo, director, Retirement and Personal Wealth Solutions at Bank of America. Using these four steps, an advisor can assist you in developing a plan to generate the income you’ll require in retirement.


Increase your savings and investments for the future.

It is critical to begin saving and investing as soon as possible. Someone who started saving $500 a month at age 25 would have $588,000 at age 55, assuming a 7% long-term return, whereas someone who started saving the same amount 10 years later would only have about half as much, or $256,000.

It may also be beneficial to reconsider your asset allocation. Though fixed income has its place in providing retirement income, investing a larger portion of your savings in equities and dividend-paying stocks may help to increase the growth potential of your nest egg.

Tantillo suggests that you consider investing a portion of your savings in an annuity. These insurance contracts provide tax-deferred growth on your assets and can generate a consistent stream of income for life or for a specified period of time. “An annuity can supplement Social Security by providing an additional guaranteed income stream,” he adds. An advisor can help you understand the various types of annuities and what they can offer, as well as their risks, and can assist you in determining an appropriate investment allocation based on your goals, age, liquidity needs, and risk tolerance.


Utilize all of your pre-tax saving options.

Consider contributing the maximum amount to a 401(k) if you are eligible. (In 2022, that will be $20,500 for those 55 and older.) Contribute at least the amount required to receive your full employer match, if your employer provides one. Then think about increasing your contribution every time you get a raise.

Consider enrolling in a high-deductible health plan through your employer so that you can contribute to a health savings account (HSA). “Contributions come out of your paycheck pre-tax, grow tax-free, and come out tax-free as long as the money is used for qualified medical expenses,” Tantillo explains. The funds can roll over from year to year, allowing you to keep your retirement savings from being depleted by health-care costs.


Consider tax efficiency.

Another key to increasing your retirement income is understanding how to draw on your retirement assets in the most tax-efficient manner. Tantillo recommends withdrawing from taxable accounts first, then tax-deferred, and finally tax-free. When you’re ready, an advisor can assist you in developing a strategy to optimize your income stream while keeping taxes in mind.

While Social Security may play a smaller role in your retirement income in the future, it does provide a foundation on which to build your monthly income. If at all possible, don’t leave anything on the table. Remember that filing a claim before reaching full retirement age reduces your benefits – for life. Your monthly benefits increase by about 8% for every year you wait to file a claim, up to the age of 70.


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Whatever happens to Social Security, Tantillo believes that “maximizing the income you get from all your sources will go a long way toward helping you live the life you want in retirement.” And, as your expenses and financial priorities change, reviewing your strategies with an advisor on a regular basis can help you stay on track toward your retirement goal.

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