Can You Count on Social Security?

While no one can predict the future of Social Security, at the moment it appears tenuous at best. Social Security began during the Great Depression. At the time, millions of elderly Americans were living in poverty. To help alleviate the situation Congress approved President Roosevelt?s plan, in 1935,

Today, money is still taken out of weekly paychecks for Social Security, but with the increase in the number of people over the age of sixty-five, the pool of funds cannot cover nearly as many people as it once did. When the program began, there was one retiree for every sixteen workers contributing to the Social Security pool. Today, it is less than a three-to-one ratio of workers contributing to retirees receiving benefits from the program.

As a result, Social Security is less significant as an income source for the modern retiree. In fact, many workers under the age of 30 are fairly certain that, unless changes are made to the system, the amount of benefits available will be very minimal at the time of their retirement.

One of the reasons there is growing concern is that the immense baby boomer generation is now approaching retirement age. Therefore, the system will be drained even faster. By the year 2020, it is possible that more money will be taken in benefits than paid into the system by employees.

While Social Security was never planned to entirely finance the life of a retiree, it was anticipated that it would cover 40 percent to 50 percent of their expenses. That number has dropped today, and financial planners are now considering Social Security as part of a three- or four-leg retirement plan, along with a pension and retirement savings plan. The earlier you put money into a 401(k) or IRA ? either Roth or traditional ? the more time you will have to let compounding interest take a greater role in your future plans and the less you will need to count on Social Security, which is now perhaps 20 percent to 25 percent of a typical retiree?s income source.

If you are approaching retirement, take a look at your Social Security statement, which is available through the mail or by going to the Social Security Web site. You can get an idea of what you would receive at age 62 and at what is considered your average retirement age (65 to 67 depending on the year in which you were born). Using your statement, you will get an idea of how much of your monthly income needs will be covered by Social Security.

Estimates are that most retirees will need upwards of 80 percent of their current income to sustain the quality of life to which they have become accustomed. Therefore, see how much of that 80 percent Social Security will cover, and plan on using your investments and pension plan (if you have one) to cover the rest.