Financial Planner Says To Expect Less From Social Security And Save More

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August 20, 2010 Friday

SECTION: Pg. 7 Vol. 24 No. 34 ISSN: 1050-3005

ACC-NO: 12918

LENGTH: 882 words

HEADLINE: Financial planner says to expect less from Social Security and save more

BYLINE: Reinhardt, Eric

ABSTRACT

WFC indicates many employers view their retirement plans mainly as a way to attract and retain employees, rather than as the primary means for their employees to support themselves after retirement. Besides a 401(k) account, Sarenski suggests another method of saving. FULL TEXT

SYRACUSE – People in their 30s and 40s might not receive full Social Security benefits when they reach retirement age, say some financial experts.

In its annual report released Aug. 5, the Social Security Board of Trustees said the long-range financing outlook on the Social Security Trust Funds remains unchanged.

The combined assets of the Old-Age and Survivors Insurance, and Disability Insurance (OASDI) Trust Funds will be exhausted in 2037, the same as projected in 2009.

“The Old Age and Survivors Insurance [Trust Fund] is what we typically know to be Social Security benefits,” says Theodore (Ted) Sarenski, president and CEO of Blue Ocean Strategic Capital, LLC of Syracuse.

At that time, the tax revenue collected will be sufficient to pay about 78 percent of Social Security benefits, according to the Social Security Administration news release.

The projection is also included in Social Security statements sent to taxpayer’s homes, says Sarenski.

The trustees also project that program costs will exceed tax revenues in 2010 and 2011, be less than tax revenues in 2012 through 2014, and then permanently exceed tax revenues beginning 2015, one year earlier than estimated in last year’s report.

The worsening of the short-range outlook for the Social Security Trust Funds is due in large part to the recent economic downturn, according to a Social Security news release.

Sarenski has a simple recommendation for anyone who might retire in 2037 or after, “It’s certainly a good idea to save as much as you can.”

He also suggests business owners and managers encourage their employees to participate in a company-sponsored retirement plan, such as a 401(k) plan, and offer a matching contribution with individual contributions.

“This instant return on the participants’ money is an incentive to save,” Sarenski says.

He also recommends business owners educate their employees about making investments and the financial problems they could face when they retire if they don’t save for the future.

However, a survey released in late April suggests employees may need to take more responsibility for their own financial future.

The survey of 357 U.S. companies sponsored by San Francisco-based Wells Fargo & Company (NYSE: WFC) indicates many employers view their retirement plans mainly as a way to attract and retain employees, rather than as the primary means for their employees to support themselves after retirement.

Besides a 401(k) account, Sarenski suggests another method of saving.

“If you’re eligible for the Roth IRA (individual retirement account), contribute to the Roth. The growth on that will never be taxed,” he says.

He notes the Roth IRA has eligibility requirements if you have a 401(k) and you earn a certain amount of money. If you’re not eligible for an IRA, Sarenski recommends saving one’s after-tax earnings in a regular savings account in a bank, in a brokerage account on a fee basis or commission basis, or by buying bonds.

Fixing the system

A July 30 article in The New York Times examining the plight of Social Security notes a proposal from U.S. Representative John Boehner (R-Ohio), the House Minority Leader, who has suggested raising the retirement age to 70 for people at least 20 years away from retirement.

Sarenski says raising the age to 70 “shouldn’t be the answer.” He notes it might be reasonable for someone who works in an office setting. But for someone with a physically-demanding job, such as a plumber or a building contractor, that age would be more difficult.

“Can you imagine trying to crawl under a sink when you’re 68-years old or climb on a roof with a shoulder full of shingles to put up on a roof in the middle of a hot summer,” he asks.

But he also notes that raising the retirement age is one of only three possible fixes for Social Security. The others include having Americans pay more into the Social Security system, or reducing the benefits paid out, Sarenski says.

Sarenski believes the federal government is partly to blame for the system’s long-term troubles, noting lawmakers have relied on funding already in the Social Security Trust Funds to help balance past year’s budgets. So, in 2015, when the system’s program costs exceed tax revenues, the extra amount necessary to maintain continued Social Security payments will increase the federal-budget deficit for the next 20 years, he adds.

“So now, we’re going to have larger deficits as they need to make up the difference between what they [lawmakers] borrowed from this fund and what’s coming in,” Sarenski says.

About 53 million people collect some type of Social Security benefit, either retirees, children of deceased workers, or those on disability, a figure he calls “a tremendous piece of the population.”

He believes the nation has become too dependent on Social Security and predicts the Social Security system of the future could be different from the present system.

“It will be around. In what form or who gets and who doesn’t get it, that certainly could be open to question,” Sarenski says.

LOAD-DATE: September 15, 2010