Social Security & Baby Boomers’ Retirement Plan
by Dr. Harold Wong
For Baby Boomers born between 1943-54, Full Retirement Age (FRA) for full Social Security (SS) is age 66. This contrasts to the age 65 that was FRA for decades since the Social Security Act was passed in 1935. For those born in 1955, FRA is 66 plus 2 months. For every year after those born in 1954, FRA increase by 2 months until FRA is 67 for those born 1960 and later. For those whose FRA is 66, you get 25 percent less if you start SS benefits at 62. For every year after 66, you get 8 percent more for every year you wait until age 70. Note: only 1.2 percent of men and 2 percent of women wait until age 70 in order to get 32 percent more than if they took SS benefits at age 66. Example: if you would have received $2,000 monthly with FRA of 66, you receive $1,500 at 62 or $2,640 monthly if you wait until age 70.
There is a major difference in sources of retirement funds for those retirees versus nonretirees. Among those already retired, 49 percent said that a major source of funds was from a work-sponsored retirement plan; 48 percent from Social Security (SS); 38 percent from a 401k, IRA, or other retirement savings account; 32 percent from the equity in their house; 30 percent from individual stock or mutual funds; 25 percent from other savings such as savings accounts or CDs; 19 percent from annuities or insurance plans; 7 percent from part-time work; and 6 percent from inheritance money.
In contrast, for nonretirees, 74 percent said that a major source of funds for retirement was a 401k, IRA, or other retirement savings account; 40 percent from individual stock or mutual funds; 39 percent from a work-sponsored pension plan; 36 percent from home equity; 30 percent from other savings such as a regular savings account or CDs; 28 percent from SS; 17 percent from annuities or insurance plans; 16 percent from part-time work; and 7 percent from inheritance. Source: Wells Fargo Gallup Poll: Investor and Retirement Optimism Index, February 1-8, 2011.
Retirees rank as virtually a dead heat their major sources of retirement funds being from a work-sponsored pension plan and Social Security. In contrast, nonretirees expect their major source of retirement funds to come from what they have saved in a 401k, IRA, or other retirement savings account and their individual stock or mutual fund investments. Nonretirees have seen a drastic drop in workers covered by old-fashioned defined benefit pension plans and understand that their retirement income has to come from savings. Nonretirees rank SS as only their 6th major source of retirement funds, a striking contrast to retirees who rank it as their 2nd major source. Unless one is a government employee, most Baby Boomers, Generation X and Y workers will never enjoy an old-fashioned employer defined benefit pension plan.
Conclusion: Social Security will still be a major source of Baby Boomers’ retirement income because they have not saved enough. Any interest-bearing investment pays very low, whether it is bank instruments, U.S. Treasuries, or bonds. The average dividend yield for the stock market is only about 2 percent. Baby Boomers best strategy is to work until 70 to maximize their SS benefits and to save a big chunk of the extra 8 years of job income from age 62 to 70. Quite a few also plan to work part-time while collecting SS.
Free Seminar: “How You Can Maximize Your Social Security & Other Income” will be held Saturday June 7, 2014. The seminar is 10 A.M.-12 noon followed by a light lunch. It will be at Keller Williams University, 2077 E. Warner Road, Suite 110, Tempe. Call 800-955-2490 or email firstname.lastname@example.org to RSVP.
Contact Harold Wong at (480) 706-0177, email@example.com, or www.drharoldwong.com. Visit www.DrWongInvestorGuide.com for his previous articles.