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Preparing for a smaller Social Security check

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If you are retiring in 15 to 20 years, you’re probably already aware that projected Social Security shortages are expected to cut those benefits by nearly 25 percent during that same time frame.  This suggests that the U.S. government needs to get on the stick and find a solution to those projected shortages.  One of the proposed solutions involves raising the retirement age from its current age to something closer to 70 years of age.  The problem is that changes to the age people can begin collecting benefits hits those people with lower life expectancy much harder than the rest.

Back in 1935, when Congress first enacted Social Security the average 25-year old had a 62.4 percent chance of making it to retirement age.  Those that did could expect to live an average of 12.6 years beyond 65 (although Ida May Fuller, the first Social Security recipient lived an additional 35 years).  Today, about 80 percent of us will make it to age 65.  The National Center for Health Statistics predicts that the average male born in 2012 will live until age 76.4.  The average female will live to 81.4 years.  More importantly, those who reach age 65 will live on average to 83 for men and 85.5 for women.  Compared to other countries, the U.S. is falling behind in life expectancy, but we’re still living nearly 20 years after our current retirement age on average.

When researchers consider income levels, those men in the top 10 percent of incomes can expect to live to age 89.9.  However, men in the poorest 10 percent can expect to live only until age 79.  A college degree also improves life expectancy.  Those with more education (four or more years of college) tend to live two to five years longer than the national average.  All of which means that for middle income (or better) Americans, financial planning should take into account a retirement of potentially 25 or more years.

One concern is that some data show that Americans are reaching old age in worse health than previous generations.  Obesity, chronic conditions such as Alzheimer’s disease and diabetes are hitting Americans particularly hard.  Clearly, having some realistic idea about your own life expectancy should be taken into account when making retirement decisions especially those that involve claiming Social Security benefits.

Here’s why all this is important.  A college degree doesn’t help you to live longer any more than a higher income helps you to live longer.  What is important is that good medical care and taking care of your health is easier when you have the income and career path to allow you better access to those resources.  Therefore, if you take care of yourself by exercising, eating right, getting enough sleep, socializing and having a sense of purpose, regardless of your education or financial well-being, plan accordingly for your financial well-being.  You are likely to live longer and should at least consider postponing collecting Social Security for as long as possible, regardless of whether or not the government gets its act together and passes something to preserve Social Security benefits because the government won’t have to live off a stingy Social Security benefit.  You will.

Finally, regardless of your life expectancy, all Americans at all ends of the financial and health spectrum have to quit relying upon Social Security as the only leg in our financial retirement plan.  As we’ve seen so often in the past few years, both parties are particularly skillful at playing chicken with government decisions while those of us on the sidelines hope that one of them blinks.  If you’re in your 50s, you can reduce that particularly angst by planning around reduced Social Security benefits now (and hoping for a better solution later).  One of the most important decisions you can make to mitigate this problem is to consider hiring a financial planner.  Many people think of financial planners as someone for only those in higher income brackets to hire.  Lower income people that can afford the $1000 to $3000 a financial planner would cost can create a financial road map that could potentially net them tens of thousands of dollars in increased Social Security benefits and reduced taxes that will provide you with the confidence that their financial plan is on track and thus pay for itself.  A financial advisor can help you create a realistic picture of what you’ll need to save for retirement and what adjustments you’ll need to make if you’re not currently on track.  If you are already retired, a financial planner can help you make the most of your retirement nest egg.  If you can’t afford to hire a financial planner, then you need to do the legwork to be your own financial planner.  Regardless of whichever track you take, don’t count on the government to come up with a solution you can live with or Social Security to come up with a paycheck you can live on.

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