According to the Social Security Administration, the average monthly benefit for retired workers of 65 years of age is $1,300 per month, or $15,600 per year. Median family income in the United States is currently $54,000. With roughly 20 percent of people near 65 years old having saved zero for retirement, how can these folks live anywhere near their current standard of living? The most these families can hope to live on is $31,000 per year, and that only occurs if two adults qualify. In other words, millions of families with new retirees may need to live on a fraction of the income that they had previously lived on.
It actually may be worse. The Employee Benefit Research Institute’s 2013 Retirement Confidence Survey found that 57 percent of households have less than $25,000 in retirement savings. The implication? The 20 percent of people with zero savings grossly underestimates how little the majority of families have. Can the “57%-ers” live 20 to 25 more years on six months of income and existing Social Security benefits? Probably not.
It is not like U.S. government representatives can feign ignorance about the difficulties ahead. It’s not like the citizenry can afford to keep its collective head in the sand either.
Americans should expect a dramatic increase in benefits in the near future. Representatives in Congress will approve it, a president will sign it, and a variety of “classes” will foot the tax bill. If you are employed, a larger chunk of your income will be taxed away to pay for the new legislation. What if you are considered rich? Then you will see your dollars redistributed as well. And if you simply did what you were supposed to do by saving diligently for your future retirement? One way or another, some of what you have will be given to someone else.
Leaders might prescribe something other than redistributing the billions in confiscated money. Perhaps the central government will force companies to maintain a certain percentage of 65-plus workers on their payrolls. Companies are often leery of hiring elderly workers, however, and there are typically loopholes in laws of this nature. What’s more, to the extent that the public sector picks up the slack, taxation/redistribution of income still covers the tab.
By definition, if you have money to invest for your retirement, you’re going to be a target. And while pre-tax plans build wealth (especially when matching is involved) – laws requiring larger minimum distributions or earlier distributions may mean higher taxation of that wealth. Roths? One act of Congress will change the nature of which portion remains a “tax-free” withdrawal. In other words, you may not be able to seek shelter in account types alone.
What can you do to keep more of what you make or made? Minimize the taxes from typical scenarios, such-as short-term trades and taxable interest income.