Can you count on Social Security?

Personal savings critical to retirement, officials say

[April 1, 2008]

Every four years, Social Security becomes a hot issue. Maybe it has something to do with the presidential election.

The people who really should be paying attention are those 32 or younger who expect to stop working at age 65 around the year 2041. That's when federal officials predict that Social Security trust funds will be exhausted unless corrective action is taken.

Fortunately, young people also have the best chance to save more by retirement, so they won't have to depend on Social Security benefits.

Recently, the Social Security Board of Trustees reported that:

1. Social Security benefits are not—nor ever will be—sufficient to provide your sole source of income at retirement. You'll need personal savings and retirement funds to support yourself when you retire.

2. Because of the growing number of people entering retirement, by 2017 the amount of payroll taxes collected by the Social Security Administration will be less than the costs of operating the program. That  means the program may need to begin using interest income earned off Social Security trust funds to make up the shortfall.

3. Unless corrective action is taken, the trust funds themselves will be exhausted by 2041. Corrective action may include increasing payroll taxes, raising the age that retirees can collect benefits, or decreasing the benefits paid.

The safety net

Economists expect Social Security—a "safety net" program that supplements incomes for widows and widowers with young children, disabled workers, and retirees—to be financially solvent for years to come. In fact, even if no changes are made in the next 33 years, revenues collected will be adequate to continue paying benefits at 75% of current levels.

Your plan

No matter the outcome of Social Security, the benefits you'll receive will never be enough to live on. That's why everyone needs a personal savings plan for retirement. The younger you begin saving, the more you'll accumulate by retirement.

Employer-sponsored 401(k) plans and Individual Retirement Accounts are excellent investments for retirement.

Right now, STCU is offering great rates on IRA share accounts. Unlike the stock market funds, your STCU IRA is insured up to $250,000 by the National Credit Union Administration, so your money will be there when you need it.

IRA contributions through April 15, 2008, can still be applied toward your 2007 tax year to cash in on possible IRA tax advantages. Consult your tax adviser.

Another option is to set up automatic deposit to STCU's high-yielding certificates. You can add $25 to $5,000 each month to your certificate—before you spend the money—earning higher rates automatically when your account balance reaches the next tier of savings.