Why Social Security Shouldn’t be a Part of Your Retirement Plan

Written by , July 20, 2012

Why Social Security Shouldn’t be a Part of Your Retirement PlanYour retirement plan is likely to have a number of different savings and income components. For example, you may be fortunate enough to have a defined benefit pension plan through your employer. You may also have a 401(k) account through past and present employers, as well as Roth and traditional IRAs. You may even have annuities and one or more life insurance policies with an investment feature.

Notice that the list above does not include an income source that many people would first think of when they consider retirement – the federal Social Security program. It would be prudent, however, not to include any future Social Security benefits in your retirement plan, especially if your under 40 years of age.

Here is some retirement advice and some important reasons why Social Security should NOT be the foundation of your retirement plan.

  • Future Benefits are Uncertain. As the first of the baby boomers start to enter retirement, there will be a significant stress on the Social Security system. While the calculations and analysis of how much money future retirees will be able to receive in benefits are subject to much debate, an objective examination of the mathematics behind the program reveals that at some point within the next few decade there will almost certainly be problems in paying the same level of benefits as the program now pays. It’s quite possible that the amount of benefits for future retirees will have to be reduced.
  • Future Eligibility is Uncertain. Average life expectancies were considerably shorter when the Social Security program was first created, and contribution levels from individual workers have not increased to cover the increased amounts that retirees already receiving benefits are likely to receive over the remainder of their lives. The age of retirement for Social Security purposes has increased over the last decade, and it would be reasonable that assume that age at which someone can begin to receive their full retirement benefits will continue to increase.
  • Future Program Solvency is in Doubt. Remember that the Social Security program comprises more than just retirement benefits. Along with Medicare, the other significant part of the program is the Social Security disability benefits. Some project that the disability program trust fund will become insolvent in 2016. And this is occurring as applications to the disability program are on the rise. This could lead to a significant cut in disability benefits, or borrowing funds from other Social Security programs – such as the retirement benefits program – in order to keep making disability payments.
  • Because the Social Security program has become such a politically charged subject, it would be prudent to be skeptical about what anyone predicts for its future. In light of such uncertainty, it’s probably best to leave Social Security out of your retirement planning altogether especially if you are young.

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