Social Security Alone Won’t Sustain Retirees With Pension, Program Provides Half Needed Funds

Will your Social Security checks provide you with sufficient retirement income? Don’t be too sure.

As reported in a recent U.S. Health & Human Services survey: “For the average taxpayer, Social Security replaces only 35 percent of retirees’ pre-tax income.”

Worse yet, the survey shows that 49 percent of retirees rely on Social Security for their main source of income, and concludes: “Whatever measures are taken to keep the system solvent, you won’t be able to depend solely on Social Security if you want to retire at your current standard of living.”

According to the Institute of Certified Financial Planners, for retirees who have company-paid pensions - and many do not - the combination of Social Security and pension still pays only 50 percent to 60 percent of pre-retirement income. That means retirees must rely more on their own investments to pay for retirement.

Here are a few tips to help narrow the shortfall:

Begin saving right away. Put as much as you can into any tax-deferred plan such as a 401(k), 403(b), SEP IRA, Roth IRA. In a 401(k), you may invest $10,000 this year, tax deferred. Money in any tax-deferred plan grows almost twice as fast as in a taxable portfolio.

Invest for total return, not for current income. Financial planner Alexandra Armstrong says, “Even if inflation continues at a moderate rate, your living costs will increase over the years. And, since your investments must keep pace with rising costs, recognize that bonds or CDs will not protect you. Keep part of your assets in stocks.”

Seek professional help. A financial planner can help you determine how much you will need to save for retirement; and will suggest alternatives for reaching your goal.

Determine how much money you need. Another recent survey shows that 60 percent of baby boomers have no idea how much money they will need for retirement.

Don’t spend all of your income - especially when you first retire. Keep investing so as to build a cushion for contingencies.

Review your retirement plan annually. Schedule a yearly checkup with your financial adviser just as you do with your doctor.

Be aware of your potential longevity. We may live much longer than our parents and will need money to last as long as we do.