The Retirement Reality

Let’s be honest, who thinks about their retirement daily when they are in their 20s and 30s? I’m not saying we don’t think about it, but how many of us are actively calculating and figuring, budgeting and planning out how we are going to get by financially when we retire? I can honestly say it’s more of a passive thought to me than anything else. Although I’ve invested in various retirement vehicles, I should make a more conscious effort to secure my financial future during retirement and you should to.

Since my 25th birthday is this year, the Social Security Administration recently sent me my first official Social Security Statement in the mail. I had heard rumors about this mysterious document before and I knew it was coming but I had no idea how much I’ve actually paid into the system to date and what I could expect to receive if I were retiring today.

If you’ve never seen one, the statement starts off by telling you what Social Security means to you. The purpose of the statement is to help you plan for your financial future by providing estimates of what your benefits are under current laws. According to Michael Astrue, the SSA Commissioner, “Social Security is the largest source of income for most elderly Americans today, but Social Security was never intended to be your only source of income when you retire.” Your sources of income should include savings, investments, pensions, and retirement accounts.

Beginning in 2020, the government will begin paying more in benefits than they will be collecting in taxes. Without any changes to the current laws, they estimate the system will be exhausted by 2037, the year I turn 52. I still will not have even come close to retiring at that point and all the money I will have paid into the system up until that point will have been lost. That goes for you and me. At best, the government estimates they will only be able to pay about 76 cents for each dollar of scheduled benefits. The estimates continue to get lower and lower and with millions of people now out of work, it is definitely a cause for concern.

According to my personal statement, I have not yet reached the required 40 credits for qualifying for Social Security benefits if I retired today so the administration could not give me an estimate of what my benefits would be. However, I have earned enough credits to qualify for disability and enough for my family to receive the survivor benefits. If I became disabled right now, I would only receive monthly payments of approximately $913 a month. In the event of my untimely death, my family may be eligible to receive about $709 a month, far from enough to maintain a lifestyle.

I mentioned a 40 credit requirement earlier to determine my eligibility for receiving social security benefits upon retirement. The administration doesn’t determine your eligibility to receive benefits by how much you have paid into the fund, but how many “credits” you have earned over your working lifetime. So, for example if you paid $50,000 into the fund to date but only have accumulated 20 “credits,” you technically don’t qualify to receive any Social Security benefit. You can earn up to 4 per year and for this year you can earn one credit for each $1,120 of wages of self employment income you earn.

So what does this all mean? It means you should check your own Social Security statement for any inaccuracies and to get an idea of how much you might be entitled to receive during your retirement. If neither of these two appeals to you, check your statement to get a wake up call of what retirement will be like for you and generations to follow. In part two of this article, I will analyze real life examples of two individuals whose situations are very different. One is on their way to adequately preparing for retirement and the other is facing a retirement financed solely by government support. The differences can be startling.

2 Replies to “The Retirement Reality”

  1. Ok, I’m one of the weird ones who thinks about retirement in their 30s.

    Keep posting man, one thing this community has very little of is financial literacy, it’s all about spend it as soon as you get it.

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