American workers who are struggling to find success as they navigate their day-to-day living expenses while also taking care of their financial retirement money have a number of things in mind — not the least of which is factoring in the role Social Security benefits will play in their plans.
Scott Galloway, the New York University professor and popular podcaster, has some striking words to say about Social Security. He also has some words of advice on how to grapple with future retirement financial planning and understanding how to handle the money involved.
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Social Security monthly benefits are not expected to cover all retirement costs. In fact, with the latest Cost of Living Adjustment (COLA), which triggered a 2.5% increase of those payments in January, the annual income for recipients is only about $23,000, barely above the poverty line of $21,150.
Related: Scott Galloway warns U.S. workers on Social Security, retirement flaw
People generally understand that they can boost their hopes for a desirable retirement by investing and saving in employer-sponsored 401(k) plans and Individual Retirement Accounts (IRAs). But there is more to the retirement preparation equation.
Galloway offered some thoughts on Social Security, and clarified some other views on how American workers can approach the retirement planning challenge.
A retired couple is seen holding hands and walking on a beach. Podcaster Scott Galloway offers some critical thoughts on Social Security and saving for a comfortable retirement.
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Scott Galloway has strong words on Social Security and retirement goals
Galloway acknowledges that Social Security faces some funding challenges in the next decade. Its trust funds might, without new laws passed by Congress, end up dry of money in 2033, according to a recent Social Security Administration report.
But he has his own ideas on how Social Security should be funded. He explains bluntly that means-testing may well be the best approach moving forward.
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That means that wealthy people, who have enough money, should still pay the tax but not be the recipients of monthly paychecks.
Galloway calls the Social Security tax a burden on the young. He says if a person has more than one million dollars in assets, or one hundred thousand in passive income, they simply don’t need the money.
Related: Scott Galloway warns Americans on Social Security, retirement risk
Scott Galloway explains, beyond Social Security, how retirement plans should be viewed
In order to get a good footing while thinking about financial retirement goals, Galloway suggests thinking hard about where your money is spent and how that relates to others. He refers to this as a person’s “burn rate.”
“What’s the burn rate you aspire to maintain in perpetuity?” he asks in his book, The Algebra of Wealth. “This is easier to answer the older you are, as you’re closer to perpetuity. But even if you are early in your career or still in school you can get some idea by building a budget from the ground up.”
Galloway suggests a simple method of asking around about how much one should be spending. Asking family members about their expenses and researching typical costs of housing and food is a place to start.
Regarding retirement planning, Galloway offers a few words of advice.
“You don’t need to project your spending forty years into the future, down to the dollar, nor should you,” he wrote. “It’s neither possible nor necessary. A rough sketch is a good start; it’s something you can refine as your target comes into view.”
Galloway says this exercise is more than just about money. It’s also personal.
“As you gain experience, you’ll know yourself better and get a feel for what you need,” he explained. “Everyone’s target burn rate is different.”
“Whether you like Pabst or Prada, rough out your projected expenses for a year and add them up. Bump it 20% to cover taxes (30% if you expect to live in California, New York, or another high-tax state). That’s your annual burn rate.”
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