With Congress instituting a one-year freeze on payroll taxes, Social Security is facing yet another deficit. Many people are facing the possibility of needing to retire without social security and wondering what exactly it would take to retire without support.
The financial status of social security
Since it was first instituted, politicians have hotly debated Social Security. The funding for Social Security is often called a “trust fund.” In reality, it operates more like a short term loan. The taxes of today’s workers go right to the checks of today’s retirees. Even low inflation can cut into the purchasing power of Social Security checks. This is usually addressed with cost of living adjustments — otherwise known as a COLA. With payroll taxes frozen and even more people retiring, the Social Security fund could run out of money.
What it takes to retire without social security
The average social security recipient receives about $14,000 a year from the Social Security fund. In order to retire without social security, a retiree needs a way to ensure income. Men who retire at 65 years old need an average of 17 years of income; women need an average of 20 years. In order to maintain a standard of living similar to Social Security and to account for just 3 percent inflation, a retiree needs to save about $300,000. In areas with a lower cost of living, such as Alexandria, Louisiana, that money has more purchasing power than in Baltimore, Maryland. Purchasing an annuity that will pay out approximately the same amount costs about $200,000 — though it is not backed by the federal government and could fail.
How to retire without social security
For many retirees, retiring without social security means finding money that seems like it doesn’t exist. Some are turning to reverse mortgages, others staying in the work force. Less than half of workers have saved more than $25,000 for retirement. In other words, to retire without social security, most workers need to start saving now – no matter how close to retirement they may be.