Charles J. Stevens, Principal, evergreen financial, LLC
The best advice I can offer in response to your post is the book Falling Short by Alice Munnell and two additional authors at the Institute for Retirement Studies at Boston College. They do not forecast a very rosy scenario for retirement for Gen X'ers. You can do an Amazon search on Falling Short for more information on the book itself. The premise of the work is that Sociall Security will have a much different role in retirement in future years and that workers will become (have become) more responsible in temrs of providing for their own retiremetn savings and planning than current generations have been.
I found Falling Short to be a good wake up call on the subject of Gen X retirement. It is not the only tome avaiable on the subject, but knowing the authors credentials and the BC Institute, I'd have to put a fair amount of weight into what they have to say.
Hope this helps.
Social Security in its current form -- meaning, current law taxes and the current law benefit schedule -- is unsustainable. At some point, either taxes will go up or benefits will come down. But that doesn't mean you'll get nothing. Look at it this way: the average person claiming benefits in 2013 received about $1,300 per month. If you're an average-wage earner retiring in the future, it's very likely you'll receive more than an average retiree receives, even after adjusting for inflation. Why? Because even if we fixed Social Security entirely by cutting benefits, the system could still afford to pay future retirees at least as much as today's retirees receive. What it CAN'T afford to pay is the much higher benefits promised to future retirees -- an average retiree in 2045 is promised 50% higher benefits than the average retiree in 2015.
So what to do? First, don't panic and give up. This isn't an unfixable situation. Second, increase the amount you're saving in your 401(k). If you're saving 5% of your earnings, I might take that up to 10%. Raising your saving rate today gives you flexibility in the future. If Congress eventually fixes social security by raising taxes, you can pay the higher taxes and adjust your personal saving downward a bit. If Congress decides to cut benefits instead, you've got a headstart in making up for those benefit cuts with your own saving.
Ryan Fuchs, Financial Planner
I'll start with your second question. My personal belief is that Social Security (SS) will be around for a very long time (i.e. another 75+ years). However, I also believe that they ("they" being future Congresses and Presidents) will have to make some changes to the program for that to happen. I also tend to believe that the changes will be made, but like with any major changes, the earlier you start making them, the easier they are to handle - that being said, I have no idea when the government will get around to actually implementing necessary changes.
I think that they will need to at least consider: (1) increasing the retirement ages (for early, full retirement age, and "late" age); (2) changing the way benefits are calculated (for example, they may decide to implement means testing); (3) increasing, or removing, the cap on Social Security wages (in 2015, the first $118,500 of earnings is subject to the Social Security tax of 6.2% - there is no cap/phaseout on the wages subject to the 1.45% Medicare tax; that amount tends to go up some every year or two) so that more income is subject to the tax; (4) a combination of these and other options that may be available to ensure that the program is still around for the long-run.
Even though I believe that SS will be around for Gen Xers and assuming that some changes will be made to the program itself, I believe the best approach for planning purposes is to use a worst case scenario approach and pretend that SS will not be available for younger generations and plan accordingly. If that is too gloomy, assume that your benefits will be less than what the SS Administration currently estimates them to be - so for example, if you go to the SSA website and plug in your information and it tells you that based on the data to date, you would receive $2,000 per month, for planning purposes, assume that you would only receive $1,000 a month (or $500, or something less than the estimate they provide).
This is a more conservative approach but when planning, if you can create a plan with a high likelihood of success using conservative numbers, then you will be that much better off if the numbers come in better than expected. In other words, assume that you will receive 25% or 50% of what the SSA estimates as your SS benefits; assume an annualized 6% return instead of 8%, etc.
That way, if you plan to have no, or reduced, SS benefits, and you end up having more than you planned, that is icing on the cake. But if you plan to aggressively (e.g. assume a higher level of benefits, higher return, etc.) you could find yourself coming in short of what you need in retirement.
At the end of the day, my belief that Social Security will be around, but with a lower level of benefits (particularly for younger generations) is what leads me to almost always suggest that people target an overall savings rate of 20% of their gross income. If you can sustain that level of savings for the better part of your career, it should put you on the path toward a secure retirement (no guarantees, of couse), even if you get a lower than expected benefit from SS, or something along those lines.
Obviously, the earlier you can start saving and the more you can save during that time, the better off you will be in the long-run. I've heard people complain about not having saved enough, but I have never heard anyone complain that they saved too much.
Hope that helps and best of luck.
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