Springfield Business Journal_2019-10-14

16 · SBJ.NET OCT 14-20, 2019 TAX & FINANCIAL PLANNING high-paying jobs in this area,” she said. “It’s really easy to save enough money when you have a good income. For a lot of our people in this area who have lower wages who are struggling to get their basic needs met, how do they have the extra to put it away for re- tirement?” Dean Young, co-founder and partner with Heim, Young & Associ- ates Inc., said too many people live paycheck to paycheck and don’t feel they can afford to save for retirement. According to the Vanguard study, 51% of individuals earning $15,000-$30,000 partic- ipate in a defined con- tribution plan if it’s made available through their employer, while 94% of individuals earning over $150,000 have such a plan. “Pay yourself first,” Young said, suggesting starting with 5% of income. “Too many peo- ple say … if I have any money left over, I’ll save it. Guess what happens?” Holly Gray, a fellow partner at Heim, Young & Associates, points to uncertainty with the federal Social Security system. “People are realizing that their financial success is falling into their own hands,” she said. Depending on Uncle Sam The 2019 Transamerica Center study found 26% of people plan for Social Security as the main source of retirement income. In 2018, the average monthly payout was $1,422. That concerns Reynolds. “Think of it as a bonus,” she said of Social Security. “It will probably be around in some form at a reduced level.” Doomsday scenarios surrounding Social Security are not new, but the timetable for cash reserves is shrink- ing. The Social Security Administration reports cash reserves will be depleted in 15 years. With no change to the program, that would re- duce monthly payouts by 20%-25%. The last time cash reserves were depleted was in the 1980s. As a response, the U.S. Con- gress voted to increase the full retirement age to 67 from 65. “It will reach a point of crisis, where the government will have to make a change,” said Derek Schmidly, owner of Auxan Capital Ad- visors LLC and adjunct professor at Evangel University. “I don’t see them going bankrupt.” He said Congress could increase the retire- ment age, reduce payouts or increase the tax base. Every day, 10,000 baby boomers reach retirement age, which is depleting the pool of Social Security funds. “The percentage of people that are retired compared with the people working is getting smaller,” Schmidly said. Young said Social Security was never meant to be the only support for people after retirement, and that’s becoming increasingly true as life expectancy increases. According to the Social Security Adminis- tration, life expectancy at birth in the 1930s, when Social Security was established, was 58 years for men and 62 years for women. To- day, according to the Centers for Disease Control and Prevention, it’s 76 for men and 81 for women. “Three years after you’re ex- pected to die, we’ll start paying you retirement benefits,” Young said. “It would be like starting the program today and saying, you start paying into this and at age 80 we’ll begin paying you your benefits. People would just laugh at that.” Young expects a solution before Social Se- curity cash reserves run out in 2034, such as raising the age when people can receive ben- efits or reducing the benefit amount. But he said legislators aren’t jumping at the chance to address this issue. “Politicians don’t want to talk about this because baby boomers vote,” he said. Future minded Central Trust’s Setser said it’s clear people need to get serious about retirement. “A lot of studies have shown that a majority of working age adults are still on track to fall short,” he said. “The trend is no doubt shift- ing to Americans’ shoulders and saving for themselves.” He cited the rising cost of health care and higher education and increasing debts as some reasons that may prevent people from saving. He advised parents and students carefully consider the college students attend, their se- lected majors and how much they take out in student loans. “I recently helped some friends with some personal fi- nancial planning. One was car- rying a student loan balance in excess of $300,000,” he said. “Even with a good salary, you can see how this would make it difficult to save for anything.” Young said the 401(k) plan, which was created in the early 1980s, has been a game changer for Americans. He said, at the least, people should take advan- tage of employer matches. “The flexibility over the last 40 years has gotten a lot better for the saver,” he said. Gray said “catch-up provisions,” which start at age 50, help people make up for lost years of saving. But she said time is the most valuable asset when saving for retirement, so the earlier the better. “With compounding, that will help build that nest egg,” she said. “You don’t want to scrape by now to have later, but look at in- creasing your contributions.” Reynolds points to life expectancies as a key factor. “When we are now living longer and our life expectancies are longer than they’ve ever been, we may stay three decades in retirement,” she said. “Without that regu- lar paycheck, that can be a long time to take care of yourself.” Savings: Social Security reserves running out Continued from page 9 Dean Young: Social Security was never meant to be all of a person’s retirement savings. $22K Median retirement account balance in 2018 M O R E T H A N O F F I C E F U R N I T U R E Better workplace interiors starts with understanding what people need from their space. Furniture does not redefine your job or the tasks that work involves. But it can create a better place for you to work. 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