The following is a guest post by Kevin Driscoll, the VP of Advisory Services at Navy Federal Financial Group.
Social Security has long been considered the third rail of politics – an untouchable policy issue. When President Bush grappled with it during his 2004 reelection campaign and launched an initiative to create personal Social Security “nest eggs” for young Americans, he managed to do little more than burn political capital. With rare exceptions, this has always been the outcome of attempts to update the old program from the New Deal.
Social Security Trust Fund
The Congressional Budget Office projects that the Social Security trust fund will be exhausted by 2029. Benefits will need to be reduced by nearly 30 percent in 2030 just to keep the system solvent. What does this mean for you? Social Security benefits tomorrow will look very different from the benefits of today—if Social Security is still around at all.
Both parties are offering temporary solutions to ensure that the trust fund will not be depleted in the near future. Officially, the Democratic platform has called for lifting a cap on the payroll tax, which would cause wealthier Americans to pay a larger portion of the program’s cost. Republicans have been resistant to that sort of expansion and have generally offered solutions that include some combination of benefit cuts, lowering the cost-of-living adjustments (COLA) and raising the age of retirement.
While a likely resolution would be a compromise between the two positions to provide a short-term solution to our Social Security crisis, younger generations must educate themselves on retirement before their “nest egg” is scrambled. As the Vice President of Advisory Services at Navy Federal Financial Group, I’d like to offer some tips and tricks for anyone beginning to plan out their future.
- Start Saving Now: The sooner you start, the better, because thanks to the power of compound interest, time really is money. The rule of 72 is a great example. This shortcut helps you estimate how many years it will take for your money to double, based on a fixed rate of return (interest).
- Know Your Options: Kick off your retirement savings by contributing what you can to a qualified retirement account. Individual Retirement Accounts (IRAs), 401(k)s, 403(b)s and government Thrift Savings Plans (TSPs) are all excellent options that allow your money to grow tax-deferred.
- Invest consistently: You can either set an amount using a percentage of your salary, or a specific dollar deduction. Being consistent is even more effective if your employer offers a matching contribution. On payday, this money is transferred into your retirement account pre-tax. The advantage of this, if you choose a traditional TSP, is that it lowers your taxable income.