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Saver’s Digest 4th Quarter 2016

In 1950, America boasted roughly 16 working adults for each retiree. The large pool of workers then contributing to Social Security and the relatively low number of retirees receiving payments combined for an effective way to fund a stable source of supplemental income for retirees.

However, since 1950, the ratio of workers to retirees has plummeted to just 3-to-1 in 2010. Projections indicate that, given the number of Baby Boomers who are entering or nearing retirement (roughly 10,000 Boomers are turning 65 each day), this ratio will shrink to just 2-to-1 in the next 10 years. Additionally, with birth rates at their lowest rate in the past century, the number of workers entering the workforce is simply not keeping up with those that are retiring. Due to the declining ratio of workers to retirees and the associated decrease in the amount generated by payroll taxes, the Social Security Administration will soon start paying out more in benefits than it receives in payroll tax contributions.

Contrary to the concerns of many, when the current fund of surplus tax contributions runs out of money, there will not be a complete cessation of payments to retirees. Although there will be no surplus to draw from to issue payments, once the surplus fund is depleted, regular Social Security payroll tax revenue from workers’ wages will still be sufficient to provide retirees their monthly retirement benefit. However, the lack of a surplus fund would result in these benefits being reduced by 20-25 percent per year from what otherwise would be paid based on current rules.

Where Does Social Security Fit Into Your Retirement?

Social Security retirement benefits replace about 40 percent of earnings for the average worker. This is unlikely to be sufficient in retirement. Even after reducing your monthly budget by cutting work-related expenses, retirees usually need at least 70 percent of their pre-retirement earnings. As a result, your retirement plan should include personal investments, savings and defined contribution plans.

Your exact Social Security benefit amount will be determined when you file. The Social Security Administration adjusts your benefit amount based on when you start collecting. You can start collecting Social Security benefits as early as age 62, but starting before your full retirement age reduces your monthly payment. Full retirement age is currently 66-67 years old depending on year of birth. You can receive an estimate of your benefits using Social Security’s online calculator at calculators.html.

It’s Never Too Late To Start Saving

Given the uncertainty of how Social Security payouts will be impacted in the next few decades, funds accumulated in company retirement plans and self-directed retirement funds will play a more crucial role in retirement. Currently, Americans are generally underprepared to make-up for a possible reduction of Social Security benefits. Recent studies show that retirement account savings are dismal. According to a 2016 survey from, 1-in-3 adults have no retirement savings whatsoever, while nearly 3-in-5 have less than $10,000 saved.

What do you need to save? If your goal is to replace 75-80 percent of your pre-retirement income, you may need a plan to increase your savings rate over time. A good approach may be to save 10% of income in your 20’s, 12% in your 30’s and 15% in your 40’s to retirement. If you are behind, you may need to save even more to catch-up. In addition, working two or three years longer or cutting back on expenses now or in retirement can make a big difference in achieving your savings goal. The most important thing is not to let disappointment about your current savings keep you from making changes. Remember, the sooner you start, the more you can save. News of the Social Security surplus fund’s approaching depletion has only added to the anxiety of many as to how they will fund retirement. The silver lining is that as long as Social Security taxes are in place, there will be government assistance in retirement—it’s just a matter of how much the payments will be reduced if Social Security is not amended going forward.

Given the projected reduction in Social Security benefits after the surplus fund is depleted, Americans must be careful not to overestimate how much they will be getting from Social Security. Now, more than ever, Americans need to remember that Social Security is not meant to fund their entire retirement; it is meant to offer a layer of support. By contributing to their employer’s retirement plan in anticipation of lower Social Security payments, Americans can ensure that they are ready for retirement on their own terms.

No matter your age, just about everyone can benefit from these retirement savings tips.


It’s a simple fact — the earlier you begin saving for retirement, the more time your money has to earn interest, compound and grow. If you’ve put off saving for retirement until your 30s or later, you can make up for lost time now by stashing away 10 to 15 percent of your salary.


Whether you want to retire at 55 and travel the globe, or work for as long as you can and stay close to home, the amount of money you need to save for retirement is unique to your goals. Rather than relying on generic approaches that suggest you’ll need 70-80 percent of your preretirement income to retire comfortably, talk with your spouse and financial advisor to settle on a retirement savings amount tailored to your goals.


Be sure to take full advantage of your employer’s tax-sheltered retirement plan, and if your employer provides a matching plan, contribute at least enough to receive the employer’s full matching amount or percentage. Your employer can also provide you with a summary of what your plan provides.


In addition to participating in your employer-based plan, perhaps also consider contributing to a traditional or Roth IRA. This allows you to supplement your retirement savings at work using vehicles that provide similar tax benefits.


Eliminate the need to move money from one account to another. So in addition to any automatic payroll deductions to your employer’s retirement plan, consider automating a deposit to your “on the side” account. By making saving routine, you are more likely to see your retirement nest egg grow. Boost your regular savings by also funneling any extra cash windfalls, such as from a bonus, directly to your retirement savings.

Inflation is a complex indicator of economic developments and conditions.

Along with its opposing indicator, deflation, inflation expresses changes in the availability of currency and/or the amount of money needed to facilitate reasonable and sustained growth within an economy. If there are too many dollars in the system, sales prices will inflate to compensate for the higher currency level — so each dollar will buy you less. Conversely, if the overall currency level is low, currency is relatively scarce and thus in demand, causing prices to deflate — so each dollar will buy you more. While controlled inflation promotes reasonable economic growth and helps prevent short-term shocks to the economy, over-inflation can cause serious problems in local markets and can greatly reduce the value of personal and retirement savings. Alternatively, deflation typically occurs when a prolonged recession (e.g., the recession from late 2007-09) causes the economy to shrink repeatedly. Decreasing prices encourage people to hold onto money and wait to buy less expensive goods, causing the economy to shrink even further. Such a “lack-of-spending” cycle can become a deflationary spiral and is extremely dangerous.


The information in this publication is not tax or financial advice. You are encouraged to review the provisions of your plan and to consult a financial or tax advisor on these and other tax and financial planning matters.
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