Introduction
The introduction of the Social Security program has revolutionized people’s perception of retirement and the cost of living after leaving the workforce. Since the beginning of the 20th century, Social Security has ensured that people of retirement age, people with disabilities, and families suffering from the loss of a caregiver are entitled to receive monthly benefits that come from the federal income tax budget (Social Security Administration, 2019). Although this program has many advantages in terms of its lifelong duration and magnitude, its projected annual benefit will not be enough for a secure retirement due to the changes in the socio-economic environment. The purpose of the paper is to look into the long-term outcomes of Social Security benefits as well as to discover additional sources of income for retirement.
Long-Term Implications
The primary flaw of the existing Social Security program is its incompatibility with inflation and living costs. Currently, a person eligible for Social Security retirement benefits should have at least 40 “credits,” or ten years of work experience (Social Security Administration, 2019). Thus, for example, a person with an annual income of $60,000 decides to file for Social Security benefits right after full retirement age in order to obtain a maximum benefit. With a hypothetical monthly benefit of $2,000, the projected yearly income will constitute $24,000. However, if during the first year after retirement, the person is able to have normal purchasing power, the cost-of-living benefit will be unable to meet the inflation demands for the rest of one’s life. The purchasing power of an individual may be defined as the number of goods one may buy with a fixed amount of money (Yin et al., 2018). Hence, with a steady 3% inflation over ten years, the purchasing value of the same amount of money will be reduced to nearly $15,000.
Inflation and Medicaid
The inflation issue is especially relevant in the context of the average income and Medicaid packages. Thus, according to the current law, people who receive Social Security yet still receive more than $25,000 of annual income need to pay the federal tax. However, while the income tax threshold remains the same, the purchasing power of this salary decreases every year, enhancing the segment of people receiving higher salaries yet decreasing their net income and purchasing power (Konish, 2021). Moreover, the prices of Medicaid premiums, which are deducted from the Social Security benefits regularly, rise disproportionally to the cost-of-living benefit adjustments. For this reason, the projected annual benefit from Social Security is not compatible with the standard of living over the years, annually minimizing the buying power of the benefit recipient. Hence, considering the existing trends in the Social Security benefit distribution, it may be concluded that the benefits alone will not be sufficient for an older adult to live.
Alternative Retirement Income Strategies
401(k)
There are many ways to engage in money-saving activities for retirement, and most of these strategies depend on how early a person starts planning their retirement income and spending patterns. If a person has an official corporate job, one of the most widespread ways to save money for retirement is to estimate a 401(k) deposit. The fundamentals of this retirement income strategy are to allocate a certain percentage of one’s money to a retirement fund, whereas the employer meets this contribution and also allocates a certain amount of money for the employees. Given the interest rate unique for every company, an employee is eligible to withdraw the money from the back after retirement.
IRA
Another important retirement income strategy is to set up an Individual Retirement Account (IRA) where a person can allocate various income types and save this money with an annual investment return rate. Depending on how much money is saved for the deposit every year and the initial investment, IRA can become a beneficial source of income due to welcoming taxation rates for the account. However, the money should not be withdrawn from the account before the person is 60 or older because then they will need to pay 10% tax for cashing the savings.
Annuity
Insurance companies play a significant role in assisting individuals to save money for retirement, but the key to benefiting from insurance companies is to start early. An annuity is a type of insurance that secures monthly check payments for the rest of one’s life. A person may sign a contract for a premium insurance plan and pay for the premium in exchange for an addition to the Social Security payments. This plan, however, should not be perceived as a full-scale strategy, as it is rather a supplement to other sources of income such as real estate investment or retirement funds.
Conclusion
The key to a peaceful retirement in terms of financial status is to plan retirement expenses as early as possible. The majority of beneficial ways to earn retirement income include investing in stocks and real estate and establishing money deposits to profit from the interest payments. Social Security, in its turn, is a federal program aimed at helping elderly people to support themselves financially after retirement. Although the initiative is good, its execution remains questionable due to incompatibility with an individual’s inflation and purchasing power.
References
Konish, L. (2021). How to record Social Security cost-of-living adjustment will be impacted by high inflation, and Medicare premiums. Web.
Social Security Administration. (2019). Understanding the benefits.
Yin, M., Shaewitz, D., Overton, C., & Smith, D.-M. (2018). A hidden market: The purchasing power of working-age adults with disabilities [PDF document]. Web.