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Retirement Planning, Actuarially Speaking August 4, 2008

Posted by retirementwithaplan in social security and pensions.
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At some point today, the American Academy of Actuaries, (you know the group, the ones that work with insurance companies to determine how much rope to throw you when you are in trouble, usually a ten foot length when you are about eleven feet from shore) will release a report outlining the mathematical suggestion that the retirement age, more specifically, increasing the time when you can collect full benefits for Social Security be moved to 67.

The point of this change is to allow more people to work until a later age, thus staving off the potential for the SSA to run out of money. Citing increased life expectancy and the fact the current restrictions are antiquated, the actuaries believe that the cash the fund provides should begin providing benefits at a later age because we are living longer.

The Social Security Safety Net

It is not a question of the safety net itself, few Americans would like to see the middle-to-low income workers have nothing. Instead, what is increasingly coming into question is the size of the safety net. The unfortunate fact is that many of these workers, after toiling at a variety of jobs over the last thirty to forty years are simply unable to work a little longer.

Popular notions of the agency going bankrupt in 2041 are based on fear. If the Federal Government can bail out trading giants like Bear Stearns and mortgage mis-handlers like Freddie Mac and Fannie Mae, there is little likelihood that something as socio-economically important as retirement go unfunded.

With the current downturn, Social Security, along with pensions provided by companies and unions are now the great economic stabilizers of our times. No market downturn will hurt these plans in the same way your defined contribution plans have been damaged over the past year.

Something You can Do

But you can rest assured that there will be changes to the program in the coming years. They may finally entertain the idea of a means test (something I have been trumpeting for almost a decade) and there may be some tax increases as well. But there is something you can do besides regret having saved more sooner.

chart of age

Structure your retirement to take increases in payments over several years if not decades. Instead of looking at the amount of money you will exit with as one lump monthly payment, try and visualize a raise in monthly income over the course of ten years. Perhaps you tap your retirement plan for income foe the first three to five years, leaving Social Security benefits until a later date, hopefully when you are eligible for full retirement. Perhaps after that, you can begin tapping any additional savings or investments to round out your plan adding another new source of income years after you left the workplace.

This plan may not be exactly what you had hoped for when you counted the possible nest egg when you quit working, but it will help you stay in the money longer – especially if they say you will live longer.



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