When you retire, the last thing you want is to face unpleasant financial surprises. Unfortunately, many Americans are in for a shock about their Social Security benefits.
In fact, financial expert Dave Ramsey has warned that far too many Americans are going to face a harsh surprise when it comes to their retirement checks, and it’s a surprise that could derail their retirement security.
You don’t want to find yourself in the situation that Ramsey is warning about, so it’s best to learn the reality ASAP before it’s too late. Here’s what you need to know.
Dave Ramsey has a dire warning about Social Security
The Ramsey Solutions blog highlights the big problem that many Americans are going to have to face when it comes to their retirement checks. Specifically, the blog warns that “Most folks think their monthly retirement benefit will be much more than what they’ll actually get.”
Unfortunately, Ramsey said that this is an especially big issue among current retirees — but that even some younger people are also falling for the myth. He explained that 62% of current retirees report Social Security is a “major source of income,” but just 35% of today’s workers expect the same from their benefits by the time they retire. While he said it is good news that confidence in Social Security as an income source is falling, that’s also a substantial number of Americans who have unrealistic expectations about their benefits.
“These 35% of folks are going to learn the hard way that what they don’t know can and definitely will hurt them when they retire. Don’t let that be you,” the blog reads.
Why is Ramsey’s warning so important for workers to pay attention to?
Ramsey is absolutely right that it’s a huge problem that 35% of current workers believe Social Security is going to be a major source of retirement income.
The reality is that, even under ideal conditions, Social Security can at best be just one of several sources of retirement funds. Benefits are only designed to replace a small percentage of your income — around 40% of preretirement earnings and even less for high earners. And, early claims (which are defined as those before full retirement age) will shrink benefits even further. Since full retirement age is 67 for anyone born in 1960 or later, most people do end up claiming benefits early so they get less than their standard benefit.
Sadly, we’re also not operating under ideal conditions. The Social Security retirement benefits trust fund is slated to run out in less than a decade, necessitating an automatic 23% cut to benefits as early as 2033. If this trust fund is combined with the disability benefits trust fund, full benefits could be paid out until 2034, after which time a 19% automatic cut would be necessary. Even if lawmakers do try to save Social Security from these cuts, any moves they make will almost assuredly impact benefits in some way.
With benefits already covering only a small percentage of income and a serious risk of future cuts occurring within less than a decade, no one should be relying on Social Security as a major income source. As Ramsey has explained, “Your financial security in retirement shouldn’t come from Social Security—it should come from what you’ve saved over your working lifetime. You are the CEO of your retirement.”
To make sure you are financially secure, you should put plenty of money into your 401(k) or other tax-advantaged plans throughout your working life. You can work with a financial advisor to help you decide how much to invest, and you should make sure that you are doing all you can to have plenty of funds to supplement a Social Security benefit that’s not going to go nearly as far as you might think.
Top Gaining Stocks
Top Losing Stocks