The Widening Gap in Social Security
According to our friends at the Center for Retirement Research at Boston College- “in 2013, the typical working household approaching retirement with a 401(k) had only $111,000 in combined 401(k) and IRA balances… This amount translates into less than $400 per month, adjusted for inflation, which will not provide a sufficient supplement to Social Security benefits.”
If this information concerns you, a good read might be: Falling Short – The Coming Retirement Crisis and What To Do About It – by Charles D. Ellis, Alicia H. Munnell and Andrew D. Eschtruth. 2014. New York, NY: Oxford University Press
The CRR brief (based on the book) published by Alicia Munnell is available on the Center for Retirement Research website. I reference the information as the “Munnell” brief.
Why the shortfall in retirement funds you might ask? The “Munnell” brief explained that increased life expectancy; declining Social Security replacement rates; and the shift of employer retirement plans away from defined benefit are some reasons; along with increasing healthcare costs and the fall of real interest rates.
I would add to that ‘shortfall’ list the fact that some families are helping adult children through economic crises and also paying hefty college fees for their children, thus having fewer funds to contribute to their own retirement savings. In some cases, the family will actually tap into their 401(k) plans to pay for college tuition for their children.
According to the research, the risk and responsibility (for our golden years) has moved away from government and employers onto the individual. Another factor for potential shortfall of funds in retirement is that more of your Social Security benefits are subject to taxation. Statistics from the study show that “in 1985 only 10% of households paid tax on their Social Security benefits, today almost 40% of households pay taxes on their benefits… and in the future that could climb to 50% of households subject to tax on their Social Security benefits.”
How to stop the widening gap in Social Security? According to the “Munnell” brief: “The way forward is to convince households to work longer, help them save more, and encourage them to consider tapping their home equity.” Another thought is that many retirees are electing to return to the workforce to supplement their incomes. (see my previous posts about innovative ‘second careers’ that some retirees have found.)
Keep in mind that retirement savings and planning is only one aspect of your entire Estate Planning Strategy.
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