Do you expect to live (even partly) on Social Security when you retire? Unfortunately, if retirement for you is set to happen after 2030, you may need to consider another alternative.
Over the next two minutes, Steve McDonald reveals the biggest problem that Social Security faces today and why now is the time to make adjustments.
This week is for all those people who still think they can live on Social Security when they retire. The Society of Actuaries – those are the people who crunch numbers for a living and come up with predictions that insurance companies and others use to make decisions that affect all of us – well, these folks just released their new mortality numbers: how long they think the average person will live. And the news is good and bad.
The average man who makes it to 65 will live to 86.6 years, up by two years since 2000. And the average woman’s life span is up by an additional two years as well, to 88.8 years.
Remember, that – according to the Actuaries – is the average, not the high side. And we all want to live a long time, right? Well, most of us do anyway.
As most of you know, I have talked endlessly in this segment about how increasing life expectancies will not only require more money to fund our retirements, but will also decimate Social Security. The current system just can’t make it past 2030 without going broke. Completely broke!
And this won’t just affect our benefits. Unless major changes are made to how Social Security is funded, those who are coming behind us will see even greater problems with their retirement funding. They are the ones who will have to fund our longer-than-anybody-ever-expected retirements.
But what almost no one gets is the new numbers also are affecting some of the biggest and best companies in the U.S. – Verizon (NYSE: VZ), AT&T (NYSE: T) and GM (NYSE: GM), just to name a few. Those with defined benefits plans are looking at big, very big adjustments to the downside because of the additional costs these longer life spans will have on their retirement costs.
The math is simple – the longer their employees live, the higher their costs to pay them their pensions.
Last month, AT&T took a $7.9 billion charge on its pension plan. An unexpected charge!
Verizon took a $7 billion charge.
Kraft Foods’ (Nasdaq: KRFT) earnings fell by $757 million because of the new mortality assumptions.
And GE (NYSE: GE), GM, Kimberly-Clark (NYSE: KMB) and Kellogg (NYSE: K) all have the same story to tell.
Now, I know what you’re thinking. Very few companies nowadays have these types of plans where the companies have to fund retirements. Most are 401(k)s with much lower costs. I know that.
You’re right. But look at it this way.
These companies have a tiny, tiny fraction of the number of retirees they have to support compared to Social Security, and they are having to make these huge dollar adjustments. And remember, they have to show their adjustments to their stockholders. Social Security, in its usual magic-money, Washington-management style, does not.
If these comparably miniscule programs have to shift billions to make their plans viable, why isn’t Social Security doing something, too?
The huge boomer, lump-in-the-snake retirement problem is on us now! It is no longer a theoretical threat. These pension-funding numbers for the big corporations are just the tip of the iceberg.
If you aren’t properly prepared – that means having enough set aside for what lies ahead – get ready to live at or below the poverty level for a long, long time.
That’s what Social Security as your primary income source guarantees.
In today’s numbers, that is until an average of 86.6 and 88.8 years. That’s a long way from 62 or 66.
Get serious about your retirement because Washington obviously is not.