A Retirement Plan That's Guaranteed to Failhttp://www.fool.com/retirement/general/2009/06/24/a-retirement-plan-thats-guaranteed-to-fail.aspx Chuck Saletta
June 24, 2009
A lot of people are barreling toward a retirement catastrophe. Almost a third of Americans, in fact, are setting themselves up for failure.
According to The Employee Benefits Research Institute's 2009 Retirement Confidence Survey, 32% of us think Social Security will provide a significant source of our retirement income. Even scarier, more than half of all people who haven't saved for retirement are expecting Social Security to step up to the plate with a large chunk of their support once they retire.
Yes, but ...
In fact, for the first time in a quarter-century, Social Security expects to pay out more money in fiscal year 2009 than it will take in as tax. While the system is expected to remain close to balanced for a few years, by 2015, it will start to become a tremendous net drain on federal coffers.
This is serious. As recently as last year, the Social Security Administration thought it had until after 2011 before it started running a deficit and that its trust fund would last until 2041. The economic downturn has forced tax revenues to come in below expectations, and baby boomers signing up for early retirement benefits are exacerbating the situation. Once the trust fund evaporates, Social Security will be able to pay benefits based only on the taxes it receives.
When the trust fund is exhausted, Social Security is expected to be able to pay only around 78% of its promised benefits. That works out to an inflation-adjusted equivalent of about $10,792 per year -- or just under 75% of the new minimum wage.
If you're among the third of Americans expecting Social Security to deliver a big part of your retirement income, you're planning for a lifestyle somewhere between about minimum wage and well below minimum wage. If that constitutes a "substantial" part of what you hope your retirement lifestyle will be, it's certainly your choice. But if you'd rather have the cash to enjoy your golden years, you certainly need to look beyond just Social Security.
Put time on your side
Certainly, the past year or so has been extremely rough. Even taking that into account, look at how these stocks -- all well-known and still profitable, in spite of the economic meltdown -- have performed over the past 30 years: