With older parents starting to require additional assistance and two college-age kids they support financially, Donna and Ed (not their real names) are examples of what I call the "sandwich generation." Members of the sandwich generation often find themselves caught in the middle, with kids still at home or in college and elderly parents facing financial and health issues who need their help.
Donna and Ed are in their late 40s. While they both have a few years left in their careers, they are getting a jump on planning how to take their savings and turn them into income streams once they stop working. Having witnessed the struggles of their elderly parents, who were not proactive in planning, this couple has made fine-tuning their transition into retirement a top priority.
However, as Donna and Ed discover more about financing their retirement and planning for long-term care and other issues, they are concerned about the long-term viability of the cornerstone of their retirement blueprint-Social Security.
Donna and Ed are not alone in these concerns. Not only have the two of them witnessed the stress and anxiety of aging parents attempting to get by on Social Security alone, but they have also read tons of articles indicating the program may be in trouble. Respondents to a recent Harris poll expressed identical worries about the future of Social Security. Over 70% of those surveyed are convinced Social Security will run out of funding or experience cutbacks. 33% of those who have yet to draw Social Security feel they will never see a penny of that money.
What do most seniors worry about most when it comes to Social Security?
It's common to hear stories about seniors on Social Security having severe financial challenges. Many seniors about to retire worry that their monthly benefits won't be as generous as they need. Unfortunately, it is true that, like some other government-sponsored programs, Social Security isn't in ideal shape at the moment. In the future, as the last of the Baby Boomers exit the workforce en masse, Social Security will owe more money than it will take in from payroll taxes. The Social Security Administration (SSA) may need to tap into its trust funds to keep pace with scheduled benefits. Depletion of those trusts, some experts warn, could mean that Social Security could need to slash benefits or (worst case scenario) will go bankrupt.
Experience a reduction in their checks is one of the top worries of pre-retirees planning for Social Security. However, I tend to believe that because of the political significance of Social Security, it's unlikely that politicians will rock the boat too much. Still, it's wise to learn everything you can about the program and get some idea of your estimated benefits.
You can access your annual earnings statements on the SSA website to get an estimate. If you're over 60, you may receive these in the mail and want to save them. Your earnings statements are a summary of your yearly taxable wages. They also provide an estimate of what your future Social Security payments will be. These statements summarize your annual taxable wages and estimate your future Social Security benefit, calculated on 35 years of wages. The closer you are to retirement age, the more accurate your future estimate will be.
Is Social Security running out of money?
Since I can remember, older people I know have expressed concern that Social Security will run out of money before their retirement ends or before they even get their first payout.
I understand the reason for this anxiety. It's an open secret that Social Security's balance sheet is not in great shape. As I mentioned, in the coming years, the program will owe more money in benefits than it receives in revenue because so many people will leave the workforce at once. At the same time, there will be fewer young people starting jobs. These two factors will decrease the payroll tax that funds Social Security.
Social Security could tap its trust funds to keep up with scheduled benefits. Once those trust funds dry up, which might happen in 10 years, the program may have to make drastic changes.
What actions can you take to help shore up your Social Security benefits?
When Donna and Ed looked at their earnings statements, they were not too pleased with what they saw. They called their retirement income planning specialist for suggestions to help them increase the amount of estimated benefits. They learned that the more income you make, the greater your advantage. By starting an online business as a "side gig," Donna and Ed are helping create a more robust income they can invest now. Earning extra money may also bump up their Social Security benefits once they're ready to retire.
Another strategy suggested by their advisor is to delay taking Social Security until they have reached their full retirement age, which is 67 for anyone born in 1960 or later. Each year they will refrain from claiming benefits until age 70, increasing them by 8%. This increase remains in effect for the rest of the time they collect Social Security.
Can having an annuity reduce Social Security anxiety?
If you're like Donna and Ed and other people 10-15 years from retirement, you have doubts about addressing your over-dependence on Social Security. You may realize portfolio diversity is critical, especially in our current economy. You've also probably thought that having an additional source of lifetime income is a prudent course of action. Depending on your age, risk tolerance, and financial goals, a deferred annuity, a type of insurance contract used to create retirement income, may be an excellent choice to supplement your Social Security or pension. Seniors often use deferred annuities to bulk up their retirement nest eggs and supplement pensions or Social Security benefits. The annuity issuer gives you a series of payments plus returns in exchange for either one-time or recurring cash deposits held for a specific time.
Seniors who purchase annuities do so for many reasons, including an annuity's lifetime income-generation benefit, design flexibility, protection of principal, and tax-advantaged growth. An additional feature offered by some annuities (at an additional cost) is access to a percentage of your account's value, penalty-free. Such access means that contrary to what many believe about annuities, your money does not need to be inaccessible.
Annuities, while not suitable for everyone, can be helpful to many seniors, especially those worried about running out of money in retirement or the failure of Social Security.
Yu's views: Those squeezed into the sandwich generation have a lot about which to be concerned, including running out of money in retirement. It's typical for sandwich generation people to start thinking more about Social Security and how they can protect their financial fortresses from the system's inherent weaknesses. One option available is to purchase a deferred annuity. Deferred annuities can give retirees contractually-guaranteed, predictable income streams lasting either a specified time or for the annuitant's lifetime. Guaranteed income from these types of annuities is tax-advantaged and can supplement Social Security or pension payments, adding an extra layer of fortification to your retirement portfolio.
Not every pre-retiree or retiree can benefit from buying an annuity. You should speak to a financial advisor to determine if an annuity is a right choice for them. Your financial advisor can help you evaluate your current financial situation and determine which products will work best to help supplement your Social Security or pension income. If you'd like to discover more actionable strategies for ensuring you won't run out of money when you stop working, check out my book, "Fortifying Your Financial Kingdom."
For a limited time, USA residents can get a copy mailed to them at no charge. Find out more now at https://jerryyu.retirevo.com/content/book-request