Why_We_Should_Prepare_for_Retirement.

Retirement and Social Security COM/156 April 3, 2011 Alison Bonham Retirement and Social Security Social Security has been a huge debate for the last few years. Some argue that it will no longer be around, and some say it will be there and working properly. Published reports and discoveries have sais with no change made to the program will run out of money by 2037 (O’Connell, 2011, p.1). Currently there is $2.6 trillion in Social Security’s trust fund, and when it runs out in 2037, benefits will be reduced by 30% (Why Social Security must change now). Nearly 30% have savings of less than $1,000 and more than half of Americans have less than $25,000 (Willis, 2011, p.1). Social Security will not be able to provide for Americans through their “Golden Years.” Many wonder how exactly Social Security work, 7.65% of Americans gross income is withheld from their checks to pay the benefits of the people currently collecting benefits. The employer also pays 7.65% to Social Security. In 1935, when Roosevelt signed the Social Security Act into law, lawmakers had no clue of the future baby boom to come. If population was to rise steadily, Americans will not be faced with this problem today. Social Security does not only pay benefits to retirees but also people with disabilities, survivors, and supplemental security income (SSI) (How does the Social Security system work') There have been many ideas to help Social Security in the future years. Tax increases, decreased payouts and rising full retirement age to 70. Some say a “fix is not painless, but it is relatively simple.” “If we increase the retirement age to 70 starting in 2013, employ means testing to adjust benefits in steps for those who make over $250,000, who can afford reduced benefits without hardships, change the cost-of-living adjustment (COLA) to cost based and not wage based, and raise the income on which FICA payments are made” (Mariotti, 2011, p.2). These changes that can be made are simple and will not have a considerable effect on retirees now, it will allow current or near term retirees have the same benefits as of now, and reduce benefits for retirement ages 62-69. Also index full retirement age to life expectancy, which is currently 78, and keep it 10% below that (Mariotti, 2011, p.2). Without these changes Americans futures are looking grim if we do not prepare for them today. Today Social Security is getting harder and harder to receive your benefits even if qualifications are met. Social Security dependents are facing lower payments because of no cost-of-living adjustment (COLA). COLA is determined by an increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year to the third quarter of the current year. The Bureau of Labor Statistics determined that there is no increase in the CPI-W from the third quarter of 2008, which was the last year a COLA was determined, to the third quarter of 2010, so under existing law, there can no COLA in 2011. Every year the cost of living goes up, so usually our employers will give us a cost of living raise. Many other changes that would normally take effect based on changes in the national average wage index are also not taking effect. Because there is no COLA, the statute also prohibits a change in the maximum amount of earnings subject to the Social Security tax as well as the retirement earnings test exempts amounts, which will also remained unchanged in 2011. With Social Security receivers not seeing this same raise that means they will have to live off what they were receiving last year, even if their expenses have risen. Also due to the lack of jobs, and the lack of people paying into Social Security, does not help with the benefits people are seeing (Lassiter, 2010, para. 1-2). To date the government has no other ideas for new programs to replace Social Security. Although they are discussing ideas to change the existing program to save Social Security. The government does believe that the tax revenues will again exceed the program costs in 2012 through 2014, but permanently falling below program costs again in 2015, which is one year sooner than they though last year. The first year that the tax revenues fell below program costs were in 2010. Social Security is stating that the Trust Funds would require an additional $5.4 trillion in present value dollars to pay all scheduled benefits. Without the extra revenue, benefiters will either be denied SS benefits or have their current payouts deducted. This is unsatisfactory due to that when Americans are retiring in the future they may not be able to afford it and depend on relatives to support them (Lassiter, 2010, pg. 1-2). Many options are available for Americans to prepare themselves for retirement. IRAs, 401Ks, and pension plans can help to cushion retirement. IRAs,which are individual retirement accounts, there are currently five different types of an IRA; Traditional, Education, Roth, Simple, and SEP (simplified employee pension). 401k is a set amount of money removed from an employee’s paycheck tax free and put into an account, which is taxed upon removal usually at retirement. Pension plans are where the employers place money in an account for an employee for them upon their retirement. Depending on Social Security benefits is a thing of the past. Americans need to further educate themselves on other forms of insurance as well as Social Security for their retirement. The Social Security trust fund will run out one day and we need to make changes today and not wait until it is too late. If the changes are made we can possibly save Social Security and those who are still paying into it will not lose out on their money.  (n.d.). How does the Social Security system work'. Retrieved from http://howstuff works.com/question385.htm  Lassiter, M. (2010). News Release. Social Security Administration. Retrieved from http://www.ssa.gov/pressoffice/pr/2011cola-pr-alt.pdf Lassiter, M. (2010). News Release. Social Security Administration. Retrieved from http://www.ssa.gov/pressoffice/pr/trustee10-pr-alt.pdf Mariotti, J. (2011). Why Won't Anybody Fix Social Security'. Retrieved from http://blogs.forbes.com/prospernow/2011/03/31/why-wont-anybody-fix-social-security/ O'Connell, B. (2011). The Street. Retrieved from http://thestreet.com/print/story/11043170.html Willis, G. (2011). Worrying About the "Golden Years". Fox Business. Retrieved from http://www.foxbusiness.com/personal-finance/2011/03/15/worrying-golden-years  Yahoo!. (2011). Why Social Security Must Change Now. Retrieved from http://news.yahoo.com/s/csm/20110330/cm_csm/373443