Will Social Security Benefits Support Your Retirement Age?
Although individuals can claim Social Security benefits as early as age 62, the retirement age associated with full Social Security benefits had been 65 for many years. That marker has been creeping up over time, with the number currently set at age 67 for people born in 1960 or later. The goal has been to encourage Americans to retire later; the Social Security Trust Fund is only solvent through 2037 and delaying benefits will help shore up the fund.
However, according to a paper titled, “How Sticky is Retirement Behavior in the U.S.? Responses to Changes in the Full Retirement Age,” the increase in full retirement age is not stopping many Americans from retiring and claiming Social Security at the age of 65. The study, published by the National Bureaus of Economic Research (and reported in Investment News) posits that Congress needs to develop new policies – in addition to increasing full retirement age – to get Americans to retire later.
Adding to this conundrum is the effect that the COVID-19 pandemic has had on the economy and personal finances, with historic levels of unemployment or reduced work. It’s unclear right now how this will play out, but one writer foresees trouble ahead for people born in 1960—who are turning 60 years old this year—because of how Social Security benefits are calculated.
- Each year’s earnings over one’s lifetime are adjusted to index to the growth or inflation of national average earnings; the indexing occurs for the year someone turns age 60 and ends there.
- 2020 earnings are taking a major hit compared to 2019 due to the pandemic, and there will likely be a decrease in the national average earnings this year.
- This in turn reduces the indexed lifetime earnings of everyone turning 60 this year, which reduces the monthly Social Security retirement benefits.
- The author warns that, although unknown right now, average earnings could decline for another year or so, also reducing the benefits of those born after 1960.
- Those who are already retired may see little or no cost of living adjustment (COLA).
This may cause many Americans to re-evaluate their retirement timeline, as they may need to work longer as a financial necessity. This is especially true for those who have not been contributing to a retirement plan.
Build a more supportive portfolio with a self-directed IRA
Many people already understand that Social Security may not be there for them throughout their retirement years or be sufficient to rely on as a sole source of retirement income. As a result, most have retirement plans to support them in their later years. For those who’ve been planning for retirement with a self-directed IRA as part of their portfolio, they understand the need to take control of their retirement planning and diversify their investment allocations.
Self-direction enables investors to include a broad array of non-publicly traded, alternative assets within their IRAs, which provide a hedge against stock market volatility while building retirement wealth. It’s a proactive approach for individuals who are comfortable making their own investment decisions, and who understand nontraditional investments such as real estate, private equity, precious metals, lending, partnerships and more.
Are you looking to shift your retirement strategy to include alternative assets you already know and understand? Do you want to develop a retirement portfolio that reflects your interests or an area of expertise? If you’re comfortable making your own investment decisions, it’s a great time to plan your retirement from a different perspective. You’ll find a plethora of information about self-directed IRAs on our website. If you have questions about how to get started, you can schedule a complimentary educational session with someone from our team. Alternatively, you can contact us directly via phone at 888.857.8058 or email at NewAccounts@NextGenerationTrust.com.
Don’t Want to Delay Retirement? Here’s Another Option…
Although the current retirement age is 66, many seniors continue to work, even though they are eligible for full Social Security benefits. In fact, research by Provision Living (a provider of services for older adults) revealed that in U.S. cities with populations of 200,000 or more, at least 20 percent of people ages 65 and up were still working. Results of a more recent poll by Provision Living (August 2019) showed that 55 percent of respondents worked part time and 45 percent worked full time. Survey participants were between the ages of 65 and 85.
Why do seniors continue to work?
A sizable amount—one third—enjoy working and don’t want to retire, or prefer working but with fewer hours. However, 62 percent of respondents cited finances as the reason why they were still in the workforce; they couldn’t afford to retire, they were supporting families, or were still paying off debt. For many, their retirement savings were not at the level needed for a comfortable retirement that was not largely dependent on Social Security benefits.
In fact, 70 percent of working seniors in the survey said that Social Security would be their primary source of income after retirement. The others said a pension, 401(k), personal savings, and stocks would be their main income source in later years. A small percentage (11 percent) said they planned to rely on children or family to support them.
Plan for a comfortable retirement through self-direction
If you enjoy being in the workplace, that’s great! But if you’re thinking ahead to either working less or not at all, have you thought about self-directing your retirement plan?
Opening a self-directed IRA opens the door to building a more diverse retirement portfolio allowing you to invest in alternative assets such as real estate, private equity, unsecured or secured loans, and precious metals. Self-direction can be a powerful way to build retirement savings—and gives you the option to delay retirement because you want to keep working, not because you must due to finances.
Savvy investors who are comfortable making their own investment decisions can invest in what they already know and understand, take advantage of certain market opportunities, and enjoy tax-advantaged retirement savings.
The Social Security Trust Fund has an uncertain future which will affect many of today’s workers. Corporate pensions are disappearing. The stock market is unpredictable. Those who wish to self-direct their retirement plans can better control their futures, today—and create a hedge against market volatility.
Want to learn more about self-directed retirement plans? Contact us to set up a complimentary educational session. Alternatively, you can contact our team with any questions about self-directed IRAs and the many types of nontraditional investments these plans allow. We’re available via phone at 1-888-857-8058, or email at NewAccounts@NextGenerationTrust.com.
Are You Headed for a Retirement Income Crisis?
Financial advisor Ric Edelman (founder of Edelman Financial Services) was on Capitol Hill this summer with an urgent message for lawmakers: beware the retirement income crisis that will hit in 14 years. He was speaking at an event called “Planning for 75 at 25: Saving for Retirement and How Policy Affects You.” The event was held by the Funding Our Future Coalition, an organization launched by Edelman and the Bipartisan Policy Center in February.
His bottom line was this:
- The country is facing an enormous challenge regarding Social Security and Medicare
- Under current law—which was passed 35 years ago in 1983—Social Security retirement benefits will be cut 23 percent across the board starting in 2034. This cut will be for all retires equally, regardless of financial status.
- This action will lead to millions of retirees facing an economic crisis, because more than half of today’s retirees rely on Social Security for more than half of their income.
- Congress will raise taxes significantly in order to shore up cash reserves to avoid this from happening, creating a massive burden on younger workers.
- Two-thirds of Americans aged 21 to 32 have nothing saved for retirement.
Edelman added that many Americans—including sitting members of Congress who came into office long after the law was passed—are unaware of this legislation.
Open a self-directed IRA and head away from a retirement crisis
As many savvy investors already know, saving for retirement with a self-directed IRA is one way to avoid the forecasted economic crisis during one’s retirement years. By building a more diverse portfolio with alternative assets, and by making all your own investment decisions, you’re in control of your future. Whether you include real estate, precious metals, private equity, commodities, or other nontraditional investments allowed in a self-directed IRA, you can grow your retirement savings with the same tax advantages of regular retirement plans, but with far more investing options.
You can read up on self-direction as a retirement strategy in our whitepaper library and our handy starter kits will help you open an account. The team at Next Generation is here to answer any questions you have about self-directed IRAs; contact us at 1.888.857.8058 or NewAccounts@NextGenerationTrust.com.