A couple of months ago, I wrote and warned against gutting retirement accounts. However, the pandemic appears to be pushing many Americans to do just that. 27% of respondents to one recent survey said they had decreased their retirement account contributions or stopped them altogether. Another 21% said they had not yet started saving for retirement.
The CARES Act made it easier and less expensive to withdraw funds from retirement accounts, temporarily eliminating the 10% early withdrawal penalty and increasing the amount workers can borrow from their retirement accounts. While that is good news for those struggling during the pandemic, the long-term impact is not so bright. 9% of respondents to the survey said they had already taken money from retirement accounts to help weather the pandemic.
Can You Live on Social Security?
A significant percentage of retired Americans are currently living solely or almost entirely on Social Security income. One recent study by the National Institute on Retirement Security said about 40% of retirees depended entirely on Social Security. A few years ago, the Social Security Administration put that number at just under 20%. In addition, the Federal Reserve report referenced above found that about 80% of retirees reported one or more sources of private income.
In 2020, the average Social Security benefit in Alabama was $17,987.76, or $1,498.98/month. That is below the projected cost of living for a single person in a one-bedroom apartment. Moreover, the future of Social Security is uncertain. You have probably heard according to a recent Forbes article that if nothing changes, the Social Security fund will be depleted in 2023. While that does not mean Social Security benefits will come crashing to an end, it does mean benefit levels may drop, and it is not clear how that would be administered.
As an aside, in our Social Security disability practice at Bond and Botes, we find many people are concerned that filing a disability claim may have a negative effect on their ability to file for retirement when the time comes.
In fact, work-based disability benefits, commonly known as Disability Insurance Benefits, do not affect your Social Security retirement eligibility at all. In fact, you may choose which benefit to keep. In other words, if your disability monthly monetary benefit is greater than your retirement figure, then you can keep drawing the disability benefit permanently.
On the other hand, if you are drawing needs-based disability benefits, commonly known as Supplemental Security Income, you must take the retirement benefit when the time comes, regardless if it is less than your disability monthly monetary benefit. Again, your eligibility for the retirement benefit is not affected by filing for this type of disability benefit. There are several other variables to consider, but that is the gist of it.
If You have not Started Planning for Retirement, Start Now
It is a tough time to start figuring out how to set aside money. However, for most people, there is never a perfect time. In addition, the longer you wait, the smaller your account will be. That is not only because you will make fewer contributions, but also because compound interest makes a huge difference in the value of your retirement account. The earlier you start depositing funds, the more those funds will grow.
For many people, debt is a serious obstacle to retirement savings. We have already talked about the hazards of taking money out of retirement accounts to pay down debt. But what is rarely mentioned is that the impact is exactly the same when that money never makes it to a retirement account in the first place. If your life has become a cycle of minimum payments, late fees, and an increasingly distant future plan to save for retirement, it may be time to explore your options.
Bond & Botes Helps People Struggling with Debt
At Bond & Botes, we have been helping people with debt and creditor harassment issues for decades. We know your best first step is to gather accurate information. Therefore, we offer free consultations to help you make the right decision for you and your family. We can answer all your questions regarding Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, stopping a foreclosure or wage garnishment, avoiding liens, stopping lawsuits, discharging medical debt, personal loans, payday loans, credit card debt, etc. We can alleviate your stress! We want to help and we can help you
Bond, Botes, Sykstus, Tanner & McNutt, P.C.
102 South Court St, Suite 314, Florence, AL 35630
Phone: 256-760-1010 • Fax: 256-760-1023
Office Hours: Monday – Friday • 8am to 5pm
No representation is made that the quality of legal services to be performed is greater than the quality of legal services to be performed by other lawyers.