Planning for retirement without Social Security

This article was written by Kevin Mercadante from OutOfYourRut.com, a website centered on careers, business ideas, money and more, as well as the author of Lighten Your Load: Living Well On Less, an e-book focused on reducing living expenses while still maintaining a comfortable lifestyle.

Planning Retirement WITHOUT Social Security

Bob’s Monday post Will Social Security be around when you retire inspired me to spend some time thinking and working on the question: what can we do about it? The Social Security “problem” isn’t new, it isn’t unknown to our political leaders, yet nothing is done to fix what’s wrong. In the most stark terms, the translation is, we’re on our own for this one

Time is wasting fast here. On August 3rd, AP reported that the Social Security Trust fund could be depleted as early as—get this—2013! In the story Federal Tax Revenues Plummeting it is reported that

“…the government’s best estimate was that Social Security would start to pay out more money than it receives in taxes in 2016, and that the fund would be depleted in 2037 unless changes are enacted.”

Perhaps more alarming, Medicare actually began tapping its reserves in 2008. The article went on to speculate that, based on the current state of the economy, the draw down of the Social Security trust fund could actually begin as early as 2013.

The Public Reaction

The reaction by the public over the years to the solvency of Social Security and Medicare has been a curious mix of panic by some and complacency by others. Some believe the sky is falling, that if action isn’t taken soon, the roof will cave in on the cherished system. Others, perhaps overwhelmed by the sheer size of the numbers involved, yawn that we’ve heard this all before, and they assume that the system will ultimately be saved by a sustained upturn in the economy, bold action by the government or some other miracle.

I’m kind of in the middle of the two extremes. While I completely disagree with the “don’t worry, be happy crowd”, I’m not running around like Chicken Little either. Yes, we’ve been hearing about this issue for decades, but it’s becoming increasingly obvious that the day of reckoning is most definitely drawing near.

Since I believe that action is the best antidote to worry, I believe it’s past time for all of us to take control of our own destinies, to what ever degree we’re able, and get to work on a loose strategy to deal with what ever circumstances will play out.

A Plan to help deal with Social Security

Below is a five point action plan to help deal with the Social Security problem, although ironically the first point requires no action on your part what so ever. I’m purposely leaving Medicare out of the discussion because I believe it to be a different animal entirely, even though it’s lumped together with Social Security.

Social Security in the future.

Here’s where I part company with the pessimists. Social Security isn’t going away; I doubt Medicare will either. There IS a lot of fear mongering going on here, but a quick realization of the dynamics of politics and power in our country should lay the doomsday theories to rest. Social Security is the bedrock of all government programs, take it away and everything else collapses. As long as the US Government exists, Social Security checks will continue to go out. How that will happen mechanically is a matter of debate, and beyond the scope of this post, but rest assured that the program will be there. Now, that being said, expect changes; benefits will most likely be less, maybe much less in real terms, than what they are now, but they will provide SOME benefit. Plan of action here: Relax, there’s nothing you can do about it anyway!

Saving and investing.

If the level of benefits provided by Social Security will decline in the future, we will need to become more self-reliant. That will mean greater savings, and more intelligent investing. Saving 10-15% of income may have worked in the past, or at earlier ages in life, but as we get closer to retirement age, that percentage will have to rise substantially. By intelligent investing I mean truly diversifying into mutually exclusive investment categories, that will include “boring” assets like CDs and Treasury bills. Two major bear markets in the past 10 years should be enough to prove that 100% in stocks isn’t a workable strategy. If we can no longer count on Social Security, then we can no longer afford to take big investment losses either.

Lower your cost of living.

Not only will this improve your ability to save money, but it will also prepare you to live on a reduced income. If you’re saving 25% of your income, that means you’re able to live on only 75% of what you make. That’s an excellent budget position to be in as you enter the retirement years, even if you don’t retire.

Plan to continue working!

Even today most people who enjoy a prosperous retirement typically have multiple income sources. With a stripped down Social Security benefit and no traditional pension plan to rely on, we’ll probably need to broaden our income bases by continuing to work, if only part time. Start preparing yourself now for the likely reality of only semi-retirement. In that regard, if you aren’t working in a job or business you could continue in past age 65, start scoping out others that you can work at for substantially the rest of your life. Doing something you enjoy, even if for only a small percentage of what you’re earning now, could keep you connected to the world and provide the extra income needed to keep you comfortable.

The Three F’s—Faith, Family and Friends.

Two of the things Social Security has created in the past is greater faith in “The System”, and less reliance on traditional sources for community, aid and comfort. The future will likely be very different. We will most likely return to the traditional foundations of life, as one or more elements of The System begin sputtering. But no matter where our heads may be at now, all good things have always (and will continue) to come from above, and family and friends will represent our best source of help in a troubled world. Begin reconnecting now if you’ve lost touch with any of the Three F’s.