• Sources of Income in Retirement
• Using Your Money Once You Retire
• Starting Social Security Payments

The Truth About Social Security

You’ve probably heard that Social Security is in trouble. According to the Social Security Administration, the system can pay full benefits to retirees until 2037. After that, current payroll taxes can only cover about 75% of benefits promised.¹

The government is considering changes to avoid a Social Security crisis:

• The age for receiving benefits is slowly increasing
• Workers may pay Social Security taxes on all income in the future
• There’s a push to let workers invest some of their Social Security taxes in personal savings accounts
• A proposal is being considered that would let you invest Social Security funds in the stock market

But even at its best, Social Security usually provides about one-third of a retiree’s income needs. So at least two-thirds of your retirement income needs to come from other sources: personal savings and investments, employer-sponsored pension programs or a 401(k). 

Other challenges facing retirees

In addition to lower benefits from Social Security and the increased age you must reach before getting them, out-of-pocket medical expenses continue to grow, eating up even more of your retirement income.²

And there are changes to other income sources too. Employers are moving from offering traditional defined benefit plans, usually pensions, to defined contribution plans, like 401(k)s³. The main difference is that defined benefit plans promise you a certain monthly payment in retirement, while defined contribution plans only promise that they will set aside a certain amount of money to invest for your retirement. So defined contribution plans don’t offer you the guarantee of a certain monthly amount.

Bad news for women

Women in particular have three strikes against them in retirement:

• They generally earn less during their employment years
• They live longer after retiring
• They rely more on Social Security due to smaller pensions and overall assets⁴

And married women who’ve never worked only get 50% of their spouse’s monthly benefit⁵. So women have an even greater incentive to prepare for their financial needs in retirement.

Taking action

As Social Security becomes less secure, it’s essential that you plan for your own income in retirement. Take charge of your future security by considering traditional and Roth IRAs, employer-sponsored retirement plans and pensions.

Meet with your investment professional to talk about your options. Don’t have an investment professional? Find out what an investment professional can do for you and learn how to choose one.

¹U.S.Social Security Administration, Annual Report of the Board of Trustees (2009). 

²"Health Care Costs Drive up the National Retirement Risk Index." Center for Retirement Research at Boston College, February 2008, Number 8-3.

³"Why Have Defined Benefit Plans Survived in the Public Sector?" Center for Retirement Research at Boston College, December 2007, Number 2.

⁴Women and Social Security. http://www.aauw.org/advocacy/issue_advocacy/actionpages/socialsecurity.cfm (downloaded 10/3/08).

⁵Married women who never worked will, at full-retirement age, receive a monthly benefit equal to one-half of their spouse’s monthly benefit. Women who worked are eligible for retirement benefits based on their record, not their husband. But if the spousal benefit on your record is a higher amount, you will get a combination of benefits that equals that higher amount. It doesn't matter if your husband starts getting benefits before, after or at the same time you do. The Social Security Administration will check both records to make sure that your spouse gets the higher amount.