Gathering Questions on Money and Finances

We’re collecting your questions about finances, and every week, we get insights from familiar voices.

Kylie Jones, 24, from Evanston, is worried about her Social Security benefits.

Concerns About Social Security

Christine Benz, director of personal finance and retirement planning at Morningstar, mentioned that worries over the reliability of Social Security benefits are quite common.

The Social Security Trust Fund, which covers benefits and administrative costs, is projected to deplete its funds by 2033. At that point, it may only be able to pay around 75% of expected benefits.

“That’s a significant decrease, but it doesn’t equate to zero funding,” she noted. “Also, it’s important to recognize that Congress will likely take actions to support Social Security, as we know older individuals depend on it, and many of them are voters.”

Still, there are several measures Congress could consider that would impact both younger and older individuals receiving Social Security benefits.

One option is to raise the age at which individuals become eligible for benefits. Historically, the full retirement age was set at 65 until Congress began gradually increasing it to 67 back in 1983.

Currently, one can start receiving Social Security benefits between ages 62 and 70. According to the Social Security Administration, delaying your application can result in higher payouts.

Benz also pointed out that increasing the Social Security tax cap could be another solution. This cap determines the maximum income subject to Social Security tax, and any income above that is not taxed. The cap changes every year, and for 2025, it will be set at $176,100.

“Raising that cap would help address the funding issue,” she said.

Additionally, Congress could introduce a “needs test” that might adjust benefits for wealthier seniors.

Saving and Investing Wisely

Benz emphasized that younger people need to save more and brace for potentially lower returns by investing in retirement accounts, like the Roth IRA.

“With pensions becoming less common, many of us must rely on our Social Security and retirement savings,” she explained. “I suggest aiming for at least 10% savings as a starting point; those with higher incomes should consider saving 15% to even 20%.”

Employers’ retirement plans, such as 401(k)s, can also be beneficial. For younger individuals, Benz highlighted the Roth IRA as an attractive choice since it’s taxed upfront.

“The Roth IRA provides flexibility for planning because you can withdraw contributions anytime without penalties, which can be a valuable option until retirement,” she stated.

It’s equally crucial to consider what you’re investing in. Benz typically recommends a mix of index funds and exchange-traded funds. A solid investment choice might be a global total stock market fund, which gives a broad exposure to companies worldwide.

Target-date funds are another investment avenue to explore.

“These funds are designed to manage your investments until retirement,” Benz described. “They typically begin with a high percentage in stocks and gradually reduce risk as you get closer to retirement.” In retirement, the allocation might be 60% stocks, with the remainder in safer assets like bonds.

If you have financial questions for our experts, feel free to leave a voicemail at 312-321-2122 or email MoneyQuestions@suntimes.com.