You've worried about whether you'll be able to retire. Now you can do something about it -- in about five minutes.
The American Academy of Actuaries has created a way for you to propose your own solution to the problems facing Social Security. The AAA's Social Security Game asks 10 questions, giving you multiple options to bridge the gap between providing full benefits for all and the projected fiscal deficits in Social Security by 2040.
Save more or spend less
The game's choices are deceptively simple. Four questions address ways in which you can reduce Social Security benefits for current and future retirees. Four more questions suggest options to increase the amount of revenue that Social Security collects through taxation. The final two questions consider alternative ways of investing the program's trust funds, such as allowing the government to invest in stocks or giving individuals the choice to create personal retirement accounts with a portion of their payroll tax withholding.
It's interesting to see which proposed changes have the greatest impact. Raising the retirement age to 70, for example, gets you more than two-thirds of the way to a solution. Reducing benefits by 5%, on the other hand, only covers about a third of the projected deficit. Similarly, raising payroll taxes by a total of 1% would solve about half the problem, while taxing Social Security benefits as if they were private pension income would only cover about 20% of the deficit.
Investing smarter
One conclusion the game makes won't surprise Foolish investors: Allowing the Social Security Trust Fund to invest in assets other than Treasury securities would probably boost returns. The AAA estimates that a 40/60 mix of stocks and bonds would provide enough additional revenue to cover half of the projected shortfall in Social Security. On the other hand, having the government own shares of companies that it must regulate could present an insurmountable conflict of interest.
Although you can't use the Social Security Game to push drastic changes through Congress, you can apply its lessons to your own personal financial plan. Here are some things to consider:
- Don't spend too much. You don't have to make huge sacrifices to make a big difference to your bottom line. Just finding a few ways to save money can add up to a rich nest egg if you let it build up throughout your life.
- Make your income grow. The biggest asset you'll ever have is your ability to earn a living. Investing in yourself, whether it be through higher education, training programs, or simply making an effort to do your work better, will pay back dividends in the years to come.
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Take chances. You may be nervous about investing in risky assets like stocks -- especially after the long run the markets have had over the past five years. Yet historically, a diversified portfolio that includes stocks can provide better returns with less risk than a portfolio that consists solely of "safe" investments like bonds and CDs. Strong dividend-paying stocks like Altria
(NYSE:MO) , Washington Mutual(NYSE:WM) , and Penn Virginia(NYSE:PVR) can provide you with nearly as much income as you'd get in interest payments on bonds, but with much more upside potential for capital appreciation. - Know your limits. No matter how hard you try to plan, you can't take care of every contingency. If you're smart about the things you can control, you may find that the things beyond your control will usually take care of themselves.
These ideas are easy to understand, but translating them into concrete action can be a big challenge. For tips on how to make your retirement dreams reality, check out the latest issue of our Rule Your Retirement newsletter. This month, Rule Your Retirement celebrates its third anniversary with a simple three-step plan for putting your best retirement-planning foot forward. You'll find recommended portfolios for your investments, helpful advice on how to make the most of Social Security and other benefits, and a humorous approach that takes the tension out of thinking about your finances. Try it out free for 30 days and learn how you can reach the finish line of your career in style.
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Fool contributor Dan Caplinger has given up counting on Social Security, but he'll be pleasantly surprised if it's still around. He owns shares of Altria. Washington Mutual is an Income Investor recommendation. The Fool's disclosure policy covers you no matter what.