Think Social Security will provide you a comfortable living when you retire?

Think again.

The Social Security Administration (SSA) has begun an aggressive campaign designed to educate would-be recipients on the expected future value of their benefits. Beginning in October 1999, the SSA began mailing out annual benefits statements to workers over the age of 25. Among other things, these statements provide a preliminary estimate of the monthly benefit a worker can expect to receive at retirement.

Most would agree that these statements are long overdue. For years the magnitude of potential benefits and the methodology underlying their calculation has been mostly a matter of conjecture and speculation. Little concrete information was easily available to the general public. Most workers took it on blind faith that they would get their fair share - and that it would somehow be sufficient to meet their basic needs.

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Unfortunately, the statements that are being circulated by the SSA paint a very different picture. According to the American Savings Education Council, the average Social Security retirement benefit paid out in 2000 was just over $800 per month, or about $9600 per year - not enough to provide a comfortable living by a long shot.

In fairness to the SSA and to the system, however, the Social Security benefit was never intended to sustain an individual or a couple into retirement. It was designed to supplement other forms of retirement income. Unfortunately, due to the lack of information on potential benefits, most workers put little effort into retirement planning until they are knocking at retirement's door. Of course by that time it is too late. The most effective time for retirement planning is early on in a career.

If you're serious about living comfortably into retirement you should start right now to plan for the future. But as you plan, consider the following points which will shape benefit discussions and Social Security legislation through the rest of this century.

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1. People are living longer. Since the inception of the Social Security program, the average life expectancy in the United States has increased by nearly 10% - from around 77 years to almost 83 years - and it continues to climb.
2. Retirement is expensive. Most financial experts recommend planning for a target retirement income that is about 70% of your pre-retirement income - a number that surprises most people.
3. Social Security can generally be counted on to replace less than 40% of pre-retirement income. This leaves the balance to be funded through other means. For more information on your future Social Security benefits you can request a free statement from the Social Security Administration at 1-800-772-1213. Note: the SS Adminitration automatically mails these statements each year - you may have already received yours.
4. Inflation will continue to increase average living expenses into the future. While inflation has been comparatively tame in recent years, its cumulative effects are still felt very strongly by individuals on a modest fixed income.
5. Health care expenses will consume an inordinate portion of total income in retirement years. Even as life-spans are increasing, the cost of quality healthcare is rising at a more rapid rate than inflation and will likely continue to do so in the future.
6. Demographic changes will continue to put pressure on the Social Security system. As life-spans increase, the aged population will continue to swell as a percentage of the total population. At the same time, birthrates have been declining in developed countries (including the USA) for years. This is resulting in a unique demographic phenomenon where, over time, there are fewer and fewer active workers toiling to support an ever-expanding and needier population of retirees. This problem will be magnified in the United States due to the imminent retirement of the "baby-boom" generation in the first half of this century. When the Social Security system was put into place there were, on average, 3.3 workers contributing to the support of each retiree. Most of us will see that ratio drop to about 2 workers per retiree in our lifetime. As the "boomers" begin to retire en-masse, the long-term solvency of the Social Security system will be tested as never before. Unfortunately, if the system gets out of kilter, there are really only a handful of ways to restore it to solvency. These include:

• Workers could be required to work longer before qualifying for benefits
  
• Benefits could be diminished
  
• Payroll taxes could be increased

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1. Begin planning now - regardless of your age or circumstances.  The earlier you begin to plan, the more likely you will be to retire when you want and with the lifestyle that you desire. Most financial planning experts agree that you should not count on Social Security for more than about a third of your total retirement income. This means that two thirds of your retirement income must come from other sources.
2. Save religiously.  Even if you do not feel that you can save a lot, save something from every paycheck. Make it a habit.
3. Set up a separate retirement account.  And then don't touch that money.
4. Take advantage of tax-deferred programs and company matching programs to maximize contributions to your retirement accounts. You would be well advised to contribute the maximum amount of money that can be matched by your employer. Matching funds are an excellent and painless way to bolster your nest egg - and the employer contributions are generally tax-deferred.
5. Take advantage of company pension plans, 401K programs, IRA's and other formal and structured programs that force you to set money aside each month. If your company does not currently offer a plan, ask about the possibility of establishing one. If your company does have a pension plan, ask your Manager or Human Resources representative to provide you with information on the program requirements and benefits. Most companies automatically send out a statement of benefits to employees once a year. If your company does not, it is not improper to ask for a summary of your plan. Pay careful attention to vesting requirements and rollover provisions. These things will be important if you choose to leave the company. If your spouse works, check to see what your benefits are under his or her plan.
6. Don't be afraid to take modest and calculated risks to achieve higher returns on your nest egg particularly in the early years. Take the time to become familiar with the stock market and mutual fund investments. These investment vehicles generally tend to be more aggressive than many of the alternative investment options. Of course they also come with more risk. However, most experts agree that in the long run you will be better served by having at least a portion of your investment portfolio in equities (stocks).
7. Work on paying off your home.  Avoid 2nd mortgages which continue to add layers of debt and years of payments to your home. If you buy a home early and pay it down consistently you will have a good chance of having a free and clear home when you retire. Even if you decide to sell it and move into something smaller, the equity will be there to allow that freedom.
   
   

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