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The www.FedPrimeRate.com Personal Finance Blog and Magazine

Monday, August 23, 2010

Social Security and Prudent Financial Planning: Friends or Foes?

August 14, 2010 marked the 75th anniversary of Social Security, and since then national political debate has been heavily focused on the future of the program. Democrats wish to paint themselves as the sole champions for the working and middle class by opposing Social Security reform and reviling Republicans who even suggest that seniors don’t deserve the greatest income benefit possible. Republicans are digging their heels into the facts and figures surrounding the fiscal folly of a government-controlled ponzi scheme doomed to fail. Paul Krugman’s inflammatory column in the New York Times calling conservative concern for the future of Social Security “nonsense” has fueled even more heated debate in the blogosphere and on social networking websites.

Everybody is concerned about Social Security these days.

Debthelp.tv reported in 2009 how an SSA press release revealed that “program costs will exceed tax revenues in 2016” and “the combined assets of the Old-Age and Survivors, and Disability Insurance (OASDI) Trust Funds will be exhausted in 2037”. The current debate ensues over what these numbers really mean and whether or not Americans should consider Social Security to be stable and dependable or at a crisis status.

Unfortunately, very few economists and financial analysts are making mention of the fact that a heavy dependence on Social Security benefits is not prudent financial planning, regardless of the stability of the program.

The National Academy of Social Insurance released a brief in May 2007 confirming that American retirees are not receiving proportionate income replacement when they depend on Social Security for their livelihood. According to NASI, retirees need to replace 70-80% of their income in order to maintain their quality of life, but Social Security benefits only replace about 40%. Furthermore, most American retirees depend on Social Security benefits for at least 66% of their retirement income, with SS benefits accounting for 80% among seniors in the lowest wage earning bracket. Any retirement fund that replaces less than half of the pre-retirement income should be supplemental, not a primary income source!

Yet, Washington is consumed with taking sides on the issue of reform instead of educating the public on how to do more toward securing their retirement through sound investing, savings, debt reduction, and entrepreneurship or other income supplement. Financial literacy is the real issue here, and too many Americans are so busy arguing about and depending on Social Security benefits that they miss the truth about how well these benefits can actually sustain retirees.

In a related article on Social Security I propose the following:

“It is not the government’s responsibility to take care of me in my old age...That’s my job. All of the wisdom we learned from our predecessors has been thrown out the window – we don’t have to live modestly and below our means so that we can save for a rainy day. We no longer have to be prudent for ourselves because we no longer believe that the dynamics of life can swing the pendulum to the unfavorable side of financial stability. Americans think that employers, politicians, and institutions of various sorts exist to take care of them, not to serve a specific purpose within a limited scope.”

Whose responsibility is it to plan for your financial future, and how heavily should anyone rely on government to secure their income replacement? No matter how you crunch the numbers, replacing income is hard work, and it would be wise not leave such a crucial function to the wits of elected officials who will retire well whether you do or not.

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Blogger Steve Brown said...

Anyone who relies on Social Security as a serious source of retirement income is plain silly. It may help to pay HALF my phone bill later in life, but that's about it. Yep.

Thursday, August 26, 2010 4:37:00 PM  
Blogger Pablo (yo) said...

Great blog!!!
If you like, come back and visit mine: http://albumdeestampillas.blogspot.com

Pablo from Argentina

Friday, September 03, 2010 9:06:00 AM  
Blogger Steve Brown said...

> come back and visit mine...

Seems like you have a nice blog there, but I can't really tell as I can't read it (language.) All the best!

Friday, September 03, 2010 12:58:00 PM  
Anonymous Shadow said...

Social Security is not enough to live on really, even for people who don't live above their means. My parents had a hard time keeping up with their expenses (and they didn't really have anything fancy and lived in a low cost area) by just SS alone. Due to health, they took their retirement early and wound up getting very little a month.

The main problem I have with SS is that people don't always live until 65, which means that no one ever sees that money again. Sometimes things pop up earlier in life that could alter the future. A little help then would actually keep someone perhaps from relying on SS later. If I am losing my home at 45 and I will be homeless and perhaps dead at 46, what good is that retirement money going to be? If I save my home, then perhaps I can work until I'm 65 and beyond. See what I'm saying?

Social security should work not only as a savings account for later use, but as an emergency fund in case it's needed (with limits of course).

It certainly, though, will not be enough to live on.

Thursday, September 16, 2010 9:50:00 PM  
Anonymous Anonymous said...

When I was in college these old ladies who used to work with us complained about how they had to work an extra day a week because they got social security. I didn't understand it then but I do now.

Friday, September 17, 2010 9:22:00 PM  

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