The Place of Social Security in your Retirement Plan

Legion are those who depend on their social security check for their entire retirement income.  Needless to say, this is usually not enough and as a result you have many seniors looking for work to supplement their income when they should be enjoying their golden years.  Unfortunately, establishing a financial plan to make up for the social security shortfall is near impossible unless you plan years in advance.   However, if you do have time then creating that plan requires knowing a little bit about your social security benefits and how much that benefit will be in actual dollars.

The current system we know as "Social Security" was established in 1935.  Since that time it has provided income to many generations of retired Americans.  Of course, that system is in desperate need of revising and the plan as originally set up was a plan to fail.  Current calls for Social Security reform are only the latest in a series of attempts to either seriously modify the system or do away with it completely.  It is probably safe to say that it will certainly continue to exist despite naysayers.   However, it is just as safe to say that it will probably be altered in a much larger way than merely moving the age for retirement back a few years as has been done in the past.

All of this information speaks to the fact that one should not "depend" on social security as a sole source of financial support on retirement.  While it is safe to say you will be getting something, knowing what that something is becomes extremely difficult ten to twenty years in the future.  The best solution is to plan for the worst and hope for the best.

Providing that social security doesn't change there are steps you can take in order to begin developing a financial plan to make up the shortfall from your necessary retirement needs.

The following steps should be taken by everyone at some point before they retire:

Contact the Social Security Administration and request a "statement of benefits".   You can do this in person at your local social security office or you can request that the statement be sent by mail.  Either way, you will receive a statement, which summarizes how much you would receive in dollars upon retirement at the standard age of full retirement, 65.  The first thing you need to do is make sure this number appears to be correct.   If you suspect a discrepancy then contact a Social Security Administrator and they will give you instructions for confirming the amount was calculated correctly.

Once you have a dollar amount of benefit upon retirement, subtract that from 85% of your current income.  (i.e. if your current income is $2000 per month and your social security benefit is supposed to be $1200 then subtract $1700 from $1200) Whatever that difference is represents the amount of money you will need to make up from other sources or investments to adequately fund your retirement.

Meet with a financial planner or work through the math yourself to determine how much you need invested to create an annuity equal to the shortfall for X number of years.  (X in this case represents how long you think you will live.  This is one of the few situations in which it doesn't pay to be right.)

Begin investing at a level, which will create the funds you need to properly fund your retirement.  Remember every day you delay cuts some amount of money from any retirement fund you will have in the future.  Time is an investor's best friend. Especially when it comes to investing for retirement.

Information is for educational and informational purposes only and is not be interpreted as financial or legal advice. This does not represent a recommendation to buy, sell, or hold any security. Please consult your financial advisor.