All of us who work feel the bite that Social Security taxes take out of our paycheck.  Most of us take comfort in the hope that when we retire, Social Security will be there, giving back all the money that we paid into the system over the course of our careers.  Isn’t that how it works?

Well, the short answer is no, it doesn’t work that way.  The Social Security taxes deducted from your paycheck are not sitting in a special account someplace, earmarked to be returned to you upon your retirement.  Instead, the taxes you pay today are used to pay benefits to today’s beneficiaries, just as when you retire, the benefits you receive will come from the taxes paid by people who are still working.  This arrangement works as long as there are enough people sending in taxes; it doesn’t work so well if the number of current workers per retiree is decreasing.

The baby boomer generation (those born between 1946 and 1964) have started to retire.  This large group retiring, coupled with increasing life expectancies and decreasing birth rates, means that the number of retirees will grow faster than the number of workers. 

According to the Social Security Administration, the number of workers sending in Social Security taxes to pay each retiree’s benefits has plummeted from 42 workers per beneficiary in 1945 to 3.1 in 2009.  What is more is that this number is projected to go down even further to 2.1 workers per beneficiary by 2040.  Since the ratio of workers to retirees is expected to continue declining, a shortfall in future Social Security funding is likely.

The trustees of the program project that by 2014, the Social Security benefits it pays out will exceed the amount of money coming in.  Moreover, they are forecasting that the “trust fund” will be exhausted in 2037 unless changes are made.

What does all that mean for you?

Well, that depends on how old you are and what changes the United States government decides to implement.  If you are nearing retirement, it is unlikely that your Social Security benefits will change dramatically.  Younger workers, however, are more likely to see sweeping changes in the way Social Security works in the form of higher taxes, lower benefits, or a combination of the two.

Key Point: This was never intended to provide Americans with all of the income they would need in their retirement.  Social Security is only one leg of a three-legged stool that also includes pension plans and personal savings.  With concerns mounting over the stability of one leg of the stool, retirees need to take control of their retirement by investing in personal savings plans such as IRAs and 401(k)s.

Visit us at Manarin.com.

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Photo Credit: Alan Cleaver

Yahoo Finance – Conventional wisdom says you need to save $1 million for retirement. 

That target may be easy to remember, but it falls short of the true cost of what’s required for post-career comfort.  Longer life spans, the threat of inflation and the uncertain future of Social Security benefits make this long-touted savings advice inadequate for most, advisers say.

Scottrade recently polled 226 registered investment advisers on the topic and found that 71% don’t believe $1 million is enough for the average American family.  Most said families need to save double, or more than triple, the amount.

“Younger generations, especially, need to set their retirement goals higher than other generations and start saving as early as possible, “says Craig Hogan, Scottrade’s director of customer-relationship management and reporting.

The survey solicited opinions about the current investment habits of Americans.  Questions were broken down by generations to determine advisers’ opinions on average investment goals in today’s dollars for various groups.

Generations Y (ages 18 to 26) needs to save at least $2 million, according to 77% of advisers.  Forty percent put the figure at $3 million.

Nearly half of advisers (46%) said Generation X (ages 27 to 42) should at least double the $1 million goal.  Twenty-two percent suggested more than $3 million.

For Boomers (ages 43 to 64), 35% recommended $2 million to $3 million.  Thirty percent suggested $1.5 million to $2 million.

KEY POINT:  Be sure to share with your friends and family the importance of allowing time to do most of the heavy lifting to save for retirement.  Start early, save a healthy amount and STAY THE COURSE!

For more information on managing your retirement assets, visit us at Manarin.com.