Get Real
Presenting U.S. News's ultimate retirement calculator--the essential tool you need to plot your strategy for the future
But it's also naive to imagine that Social Security will simply disappear. Today, Social Security is the primary source of income for 66 percent of elderly Americans. This degree of dependency is unlikely to lessen in the future, if for no other reason than today's low savings rate. Indeed, as private pensions become less generous and health costs rise, the elderly could easily be the country's fastest growing poverty group in the early decades of the next century. Even if Social Security disappears in name, the country will somehow have to make provision for huge numbers of elderly poor.
The implication for you? If you believe Social Security and other entitlements will pay you full benefits, then you had best assume as well that your taxes are going to increase dramatically. To keep Social Security and Medicare solvent just through 2035 would require a combined payroll tax of between 24.5 and 33.8 percent, for example.
More realistically, you can probably count on Social Security or something like it to offer subsistence benefits in the event that you need them. But the program almost certainly will become less generous with the nonpoor. Congress has already increased the retirement age for future retirees and has imposed a kind of stealth means test by subjecting benefits to taxation at an income threshold that is not indexed to inflation. Under current law, all but the poorest retirees will pay taxes on their benefits at rates that are likely to be very high given the long-term pressures on the federal budget.
The affordability illusion With all the bills I have to pay, there is just no way I can afford to save more for retirement.
In 1946, real family income in the United States was just about half of what it is today, a baby boom was underway, and still the personal savings rate was nearly 2.5 times today's. How was this possible? It turns out that what people think they can afford to save is very subjective. A recent Public Agenda Foundation study asked a cross section of Americans whether they could afford to save more for retirement. At first, 48 percent said no, but when presented with options such as cutting back on eating out, vacations, or movies, more than a third of these conceded there was room for more savings. This is not surprising. The American "gaming" industry takes in some $40 billion a year in revenues. The average American household headed by a person age 35 to 54 spent over $2,100 on eating out in 1995, as well as $560 on entertainment fees and admissions and $331 on booze. The bottom line: Most Americans do have the means to make more provision for themselves in old age, if only they'll take the challenge seriously.
Log on to our site, www.usnews.com for an interactive version of our calculator.
THE ULTIMATE RETIREMENT CALCULATOR
HOW IT WORKS. The work sheet below is the first step in estimating how much you need to save for retirement. Each new work sheet will ask you about your own circumstances and educate you about factors that will affect your retirement.
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