The Importance of Savings to Augment Your Social Security - AMAC
The simple fact that Social Security is not designed to fully replace one’s pre-retirement earnings comes as somewhat of an eye-opener for many as they near that mile marker. Then, too, the realization that claiming this benefit before their full retirement age further permanently reduces the amount of their benefit comes as a bit of a surprise to many. In fact, Social Security was never designed to be a full-replacement income vehicle–40% of pre-retirement earnings on average is the likely amount most receive.
Here’s where personal savings come into play. Without having a self-built nest egg of cash available to make up the difference between Social Security and the cash flow needed to maintain a desired lifestyle in retirement, seniors are often doomed to a financial struggle in their later years. So, what do you do about it? Certainly, the earlier one grasps the realities of retirement income planning, the more time one will have to begin the process of shoring up their savings picture. In its Social Security Guarantee plan, for example, the Association of Mature American Citizens (AMAC) recognizes this potential problem, and has included a component in the legislative framework proposal now being advanced as a solution to Social Security’s long-term solvency issue. Titled “Social Security PLUS,” the component is an add-on to the changes being recommended to save Social Security for future generations.
The “PLUS” denotes an extra retirement account that may be accessed at age 62 or later in addition to the Social Security program from which over 66 million Americans currently receive benefits. Consider some alarming data: Fifty million Americans have no retirement plan; the average person receiving retirement benefits collects just over $16,000 per year; a surprising 35% of Americans have no money set aside for retirement at all, according to a fairly recent FinanceBuzz survey.
Accordingly, the majority of retired workers rely on Social Security as the largest portion of their retirement income, and for many Americans, Social Security is their only source of income. Hence, AMAC is responding to the urgent need to help workers save more for retirement. Limited exceptions could allow for early withdrawals for emergencies, but the plan is mainly intended for retirement to complement Social Security’s relatively low replacement rate of one’s working years’ income.
The AMAC plan is voluntary for both employee and employer. Its goal is simple—to provide additional retirement funds for all workers with access to the monies as early as age 62, the current early retirement age for Social Security. This is neither big government dictating behavior, nor an employer mandate, nor a new regulation on any entity.
Here are specifics of the plan: the employee is the owner of the funds; no taxation to the employee on growth or receipt of funds and no required withdrawals (like Roth IRA); employer contributions are tax-deductible; employee contributions are after-tax; employer contributions may be stopped or started at any time. AMAC suggests 20% of the funds be invested in guaranteed interest accounts or annuities and the other 80% invested in any approved investment (i.e., S&P 500 index). Investment choices would be similar to those used in 401k plans and IRAs, and the cost of administration would be borne by the same providers who offer those plans, not the federal government.
For a full explanation of AMAC’s Social Security Guarantee and its Social Security PLUA option, visit AMAC’s website.