Reuters Money

Call it a bad omen that the Social Security doom-and-gloom was largely left untouched in President Barack Obama’s 2012 budget. The pension program not only took a hit during the economic downturn, but there are plenty red flags about its long-term viability.

Stuart Rubinstein, managing director of client engagement for TD Ameritrade, says you should consider Social Security as what it was designed to be: not a guaranteed income, but rather, an income supplement. Thus, the right time to get on track for your retirement goals is today.

Q: What exactly can we expect from the Social Security program?

It’s been widely reported that Social Security is probably insolvent. I think that the American public is going to continue to look at this and Congress will need to act [since] the landscape has really changed over the years. A number of things have changed: one, we’ve moved from a defined benefit structure to a defined contribution structure; and two, life expectancy has changed dramatically since Social Security was enacted. People have to prepare for a much longer life expectancy than they did way back when it was first enacted.

Q: How do we prepare for the worst-case scenario?

People have to take control of what they can control. And what can they control? Well, two big things: one is how much they spend and one is how much they save. Saving and investing is critical for people in older generations to ensure they’re able to retire [or] they’re able to work if they want to, and for how long they want to. Starting earlier is better than later, but the time to start if someone hasn’t is today.

Q: Is there a particular demographic that should be more concerned?

I think younger people today hear about Social Security and are somewhat skeptical that they’re going to collect it. We’ve actually seen with some other work that we’ve done, especially with Generation Y, that they’re feeling better prepared. I think they’re feeling better prepared because they’re taking matters into their own hands a lot sooner.

Q: Will current retirees or those approaching retirement be affected?

I think that any changes to Social Security is going to affect younger generations, maybe even unborn generations. It’s more likely to impact those folks than the people who are closer to retiring. For example, a kid in the tenth grade really hasn’t started contributing to Social Security yet, so it’s okay to change the rules on her.

Q: Does this mean that people should avert risk and should rely on more stable forms of investing?

I think people need to understand their tolerance for risk. There is a risk/reward trade-off and I think people need to consider how long they have between now and retirement. They can make sure they’re diversified and they can make sure they can withstand a short-term hit to their portfolio if they’re in riskier investments. If someone’s going to retire in the next few years, a good part of their portfolio should probably be a little more conservative. If someone’s retiring at age 65 today, their life expectancy can go beyond 10, 15, 20, 25, even 35 years. So there’s a portion of their money that’s going to need to keep pace with inflation.

Q: Should the average American be worried?

I don’t think they should be worried, I think they need to pay attention. Are they following the ABCs of investing, which is automated bi-weekly contributions? Which means, are they investing in the market all the time? The same thing you do with a 401(k) you can do outside of a 401(k). Set up automated contributions so you’re always contributing. They need to pay attention to what’s happening in the markets and their own tolerance for risk, and make adjustments to their portfolio from time to time as their portfolio allocation shifts away from the portfolio allocation that they really want.

Q: When else should people reassess their pension plans?

As milestone birthdays come, take a look and see if that’s still the right allocation. Maybe it needs to get a little more conservative as you get older. Certainly, when someone becomes an empty nester expenses that were maybe spent on the kids can now be put towards accelerating retirement savings. You start getting into those years when your expenses have really gone down because your kids are off the payroll.

Q: Do people need to start saving more money earlier?

Earlier is always better, since the right time to start is today. I never consider it too late to start. Today is the day to start and to do it continuously. There are some great products on the market whether from TD Ameritrade or from anywhere else that clients can automate to get their retirement savings on track. And then, if they do collect Social Security, let it be an income supplement the way it was intended to be. I call that a bonus.

Q: Should people shift their way of thinking, meaning Social Security should be considered a benefit and not a guarantee?

I’d think of it as an income supplement. I think people should develop their own income plans from their own savings and then Social Security can be added to that. I think it’s really important, especially for younger people, to develop a habit of saving and investing. There’s almost no amount that’s too small to start with. Just start, be disciplined and keep building on top of it. Maybe every time you get a raise, take a portion of that raise and allocated some part of it to increasing your saving and investing.

Q: So, this isn’t the end of the world?

No, we just have to think differently. We’re still going to go on, people are going to continue to work and continue to save for retirement and we’re here to help them do that. Sometimes this can be a complicated topic, so people should consider speaking to an adviser.