Farnoosh Torabi

Some people think about saving for retirement in their twenties, others start contemplating rocking chair resources after they hit the big 40.

With a recent report that Social Security funds are dwindling, folks of all ages are wondering if they'll have enough to retire comfortably. 

What ever age or type of saver you are, the key is coming up with an action plan, advised personal finance expert Farnoosh Torabi, who was on hand Wednesday to answer readers' retirement money questions during our weekly live web chat.

A poll of readers who participated in the chat found only 11 percent are sure they'll have enough funds to enjoy those golden years; while 33 percent said they definitely won't have enough money, and 56 percent weren't sure.

How much should you be socking away? asked one 40-plus reader.

“Had you been consistently saving since your twenties, I'd say 10 percent would be enough,” maintained Torabi, author of “Psych Yourself Rich: Get the Mindset and Discipline You Need to Build Your Financial Life”, and host of "Financially Fit" on Yahoo. “But if you've just begun saving in your forties, you should be as aggressive as you can be by putting about 15 percent towards your employer's 401(k), or more, and opening up an IRA or two to supplement the 401(k).”

For the 20-something wondering how she should start and worried about paying hefty commissions, Torabi had this advice:

“I would 100 percent recommend doing two things: Invest in your company's 401(k). Contribute 10 percent or at least enough to benefit from the full match your company may provide. Second, open a Roth IRA. You can open one up at any brokerage - Fidelity, Vanguard, Charles Schwab. The cheapest way to open one is probably going to a local credit union or your existing bank and opening a retirement account there. I have one with ING Direct, as well. No brokerage fees!”

Here are some more highlights from the Q&A with Torabi:

Bobby asked:

“Hi, I'm 68 years old with no retirement or pension funds, just $20,000 I've saved up over the years in the bank. I just got fired from my job as a factory worker because my entire left side got paralyzed after a stroke and I have no education at all besides a high school diploma, so what should I do with my money to maintain myself? Should I invest it in stocks or gamble it away in Vegas, because they're both just as risky aren't they?”

Torabi’s advice:

“Vegas is beautiful this time of year, but I would encourage you to continue to save that $20,000 and -- are you collecting disability? Check out this site to learn how to get compensated: http://www.ssa.gov/disability/.”

LaTonya asked:

“I am not sure if I am putting enough away for retirement. My husband and I both have jobs with pensions and health benefits at retirement (30 years). In addition to our pension contributions we have a Roth IRA that we contribute the max to each year. Is it safe to depend on our pension and not contribute more to private retirement accounts?”

Torabi’s advice:

“I never like to put all my eggs in one basket! And while you still have a pension (and that's so amazing!) I would try to diversify my savings -- you never know what could happen to those pensions or whether they'll be enough. It's always best to have a separate IRA to, again, diversify your savings and allow for multiple income streams in retirement.” 

For a full look at out web chat with Torabi go here:

No matter how old you are, chances are you’ve been hit in some way by the current economic hard times, and you may be feeling the repercussions for some time to come.

This week on Life Inc., we wrote about a government report noting that older workers could be especially hard-hit in retirement because they don’t have time to play catch up from the stock market drop and housing bust. In addition, it’s extremely tough for the 50-plus crowd to find a new job if they lose their current one.

The post prompted many readers to recount their own stories of hitting economic hard times just when they thought they’d be gearing up to enjoy their golden years.

“Lost 40% of my IRA in '08, laid off at 64, forced to sell my home for 35% less than 5 years ago. Good health and job skills, but no jobs,” one reader wrote.

More than 60 percent of our readers told us they’re worried about having enough money for retirement.

Another worry: Whether Social Security will be there to provide a safety net in old age.

In another post this week, we wrote about a study showing that 50 percent of young adults don’t think Social Security will exist at all by the time they reach retirement age.

Many readers share the same worries, and some fret that political gridlock will keep the government from making reforms that could bolster the fund.

“Changes that need to be made aren't going to happen because of all the political bickering. BOTH parties are to blame,” one reader argued.

Back to the here and now. The Occupy Wall Street protesters may get criticized for not having a clear vision, but there’s no doubt they’ve already accomplished one thing: They’ve gotten us talking about the haves and the have-nots in this country.

This week, we reported on a nifty tool that lets you see what percent you are when it comes to wealth. That prompted a heated discussion among our readers over how you make it to the wealthiest 1 percent. 

One reader noted that for some, becoming wealthy may not be the ultimate goal.

 “In other words, don't be a teacher, an artist, a policeman, a soldier, a minister, or a craftsman, and certainly don't waste your money on other people. Being a money-maker is the only goal worth while. And a money-maker is a taker, not giver. What a rotten prescription for a livable society!” the reader wrote.

No matter how wealthy you are, it’s nice to save some money here and there. This week, we offered some frugal food tips for getting protein in your diet without breaking your pocketbook.

Over on our Today Money Facebook page, many readers shared their own tips for reducing their grocery bill. They included cooking from scratch, reusing leftovers in other meals and planning out meals before you head to the store.

iOMe Challenge

Grandma and Grandpa may be getting a Social Security raise, but half of their grandkids are pretty sure they won’t see any Social Security at all.

That’s according to a new poll from the Strategic Research Institute at St. Norbert College in De Pere, Wis. It’s working with several other organizations on the iOMe Challenge, which seeks to help young people think about their financial future.

Apparently, they don’t think there’s much future there at all, at least when it comes to Social Security.

The online survey, which included a nationally representative sample of 642 18- to 29-year-olds, found only 5 percent expect that the Social Security benefits they stand to receive at age 67 to be about the same as the ones retirees are receiving today.

In addition to the 50 percent who don’t think it will exist at all, another 28 percent thought it would exist but the benefits would be much smaller. Eighteen percent weren’t sure what would happen.

Social Security is at risk of running short of funds unless some changes are made, because the general population is both aging and living longer. Proposals include raising the Social Security tax cap, increasing the age at which you start collecting Social Security and reducing benefits.

David Wegge, executive director of the Strategic Research Institute, noted that no matter what happens with Social Security, millennials will likely have to rely more on their own savings than previous generations. That’s because pensions also are becoming much less common.

“There’s much more responsibility that’s being placed on an individual’s shoulder,” Wegge said.

The survey found that about four in 10 millennials are setting aside some money for retirement each month. The ones who don’t think Social Security will be there when they retire were also the least likely to be currently saving for retirement.

Even those who are setting money aside are generally not saving very much.

That’s not surprising given the current economy. The unemployment rate for 25- to 34-year-olds was at 9.7 percent in September, according to the Bureau of Labor Statistics. For 20- to 24-year-olds, it was 14.7 percent.

Even those who have jobs may not have much left over at the end of the month. In general, younger workers tend to earn lower wages because they are just starting out, and that may be especially true right now.

In addition, Wegge noted, many younger workers may be trying to pay off student loans.

“I think that generation is coming into the workforce at a very challenging time,” he said.

Related:

Social Security recipients are getting a raise

Who pays if Social Security tax cap is lifted? Not many taxpayers

Of Social Security and Ponzi schemes

We’re having fewer babies, and some say that’s a good thing.

A report from Pew Social & Demographic Trends offering further evidence that the economy is playing a role in declining birth rates got a lot of Life Inc. readers talking this week — about whether less kids could be good for our country, and our planet.

“That speaks very well for our country. People aren't just randomly cranking out kids. They're waiting for solid economic times so the kids will be safe,” one reader commented.

Many readers seem to feel that the world has enough people already, and complained that they think people who aren’t equipped to raise children are having them.

“This is great, why bring more children into this overpopulated planet?” one reader said.

Still, some argued that without an influx of kids, who’s going to be paying into our Social Security?

Maybe it could be wealthy people.

Another popular post on Life Inc. this week showed that less than 6 percent of workers would be affected if the cap on Social Security taxes were lifted to help pay for a potential funding shortfall.

The vast majority of the more than 11,000 people who voted in our poll felt that people with higher incomes should pay Social Security taxes on at least some of their earnings above $106,800..

 “I am normally not for raising taxes, but this does make sense to me,” one reader noted.

Still, others argued that Social Security had bigger problems.

“Social Security is a joke. The whole thing needs to be reworked. Charging those of us whom will never benefit from it is not the answer,” one reader wrote.

On to more immediate pocketbook issues: Peanut butter. A report this week on how peanut butter prices are on the rise got a pretty big rise out of our readers.

Many readers said it wasn’t the only grocery item they seem to be paying more for these days.

“It would be news if you found something that ISN'T going up in price!” one reader wrote on our Today Money Facebook page.

Center for Economic and Policy Research

A breakdown of worker wages.

One of the proposals for keeping Social Security afloat is to simply ask for more money.

It turns out, not that many taxpayers would have to pay up.

A new analysis from the Center for Economic and Policy Research finds that less than 6 percent of workers would be affected if the government lifted the cap on Social Security taxes and applied it to earnings above $106,800.

Currently, taxpayers pay their share of Social Security taxes only on earnings up to $106,800. Any earnings above that are exempt from the tax.

Another plan that’s been tossed around would be to just charge Social Security tax on earnings of more than $250,000, but not to charge the tax on earnings between $106,800 and $250,000.

That plan would affect a little more than 1 percent of workers, the liberal-leaning think tank found in its analysis of the most recent American Community Survey data.

The move could potentially add trillions of dollars to Social Security coffers over the next 75 years, according to CEPR.

Social Security is at risk of becoming underfunded because the big Baby Boom generation is aging and people are generally living longer.

Other proposals for fixing Social Security include raising the age of eligibility and slowing cost of living increases.

Related:

Of Social Security and Ponzi schemes

Debt deal or not, Social Security reform is coming

How much you will — or won't — collect from Social Security

By John Schoen and Allison Linn

In the Republican debate Wednesday night, Presidential candidate Rick Perry again called Social Security a Ponzi scheme.

“It is a Ponzi scheme to tell our kids that are 25 or 30 years old today, ‘You’re paying into a program that’s going to be there.’ Anybody that’s for the status quo with Social Security today is involved with a monstrous lie to our kids, and it’s not right,” Perry said during the debate.

A Ponzi scheme, named after investing fraudster Charles Ponzi, is a type of investment fraud in which someone convinces people to invest their money in a product, usually promising very high returns.

In a Ponzi scheme, however, there is no investment. Instead, the fraudster is using the new client’s money to pay off the old clients, and often for personal use as well. The scheme usually falls apart when people try to cash out and realize that there was no real investment in the first place.

The major marker of a Ponzi scheme is that the person running it was lying about how the money was invested. The most famous recent Ponzi scheme involved Bernie Madoff, who is currently in jail after swindling people in a multibillion-dollar scam.

Social Security is much like many other public and private pension systems that operate throughout the country, and the world.

It works like this: People pay a percentage of their earnings into the fund throughout their lifetime, with the promise of getting a consistent payment back when they retire. Millions of Americans rely on Social Security payments for expenses in retirement

Social Security has drawn criticism because it is at risk of becoming underfunded. That’s because the general population is aging, leading to worries that the system will fall short as more Baby Boomers retire and start drawing Social Security checks.

There have been overhauls before, such as under President Reagan.

Much like that 1980s-era overhaul, most people agree that Social Security now needs to be updated to account the fact that people are living longer.

One simple way to get the program back on track would involve raising the age of eligibility for future retirees -- whose longer projected lifespan means they’ll be collecting longer than previous generations. (The age of eligibility already rises gradually based on your birth year.)

Another proposed change would slow the future cost of living adjustments -- which some economists have argued currently rises faster than wage growth. These two changes -- which would not cut current benefits by a dime -- would go a long way to fixing the projected shortfall decades from now.

Critics of the Social Security system also argue that the government is “borrowing” money from the trust because it holds a large surplus of Treasury bonds. But any pension fund, insurance company or other financial entity with future obligations has to set aside money for future claims. U.S. Treasuries are one of the safest places to put that surplus. Some have argued that the trust fund should invest in stocks, but the money has to go somewhere.

Our story today on Social Security by senior producer John Schoen has generated more than 1,500 comments in just over three hours since publication. There is a reason the entitlement program is considered the "third rail" of politics.

While Democrats and Republicans debate whether to change Social Security benefits as part of a bitterly contested deficit-reduction plan, our story makes the point that ultimately changes are all but inevitable.

Among the likely changes outlined in the story:

• Raise the cap on wages subject to the Social Security Tax.
• Raise the retirement age.
• Change the formula for calculating benefits.

Needless to say, there is a lot of anger in the comments, even many of the more thoughtful ones. In general taxpayers who have been working for years express anger at the prospect they might have to pay more into the system or collect less in benefits.

The fight over Social Security is largely a generational battle, with younger workers blaming baby boomers and older retirees with somehow "rigging the system."

"As a 71-year-old, I have difficulty with getting inside the head of a 21 year old, but trust me, this was not a diabolical plan on our part," says one self-identified "grandma." Many commenters complain that the government has mismanaged the Social Security trust fund or squandered away billions.

One commenter, "Magnum Serpentine," calls our article bogus and contends the Social Security shortfall could be solved easily by drastically cutting the nation's military spending.

Feel free to weigh in with your thoughts below or on our Facebook page.

As if the news about the looming Social Security crisis wasn't bad enough, a new study says the Great Recession may have permanently reduced future retirees' incomes by an average of $2,300 a year.

Somewhat surprisingly it's not the nation's high unemployment rate that receives the brunt of the blame. Instead, it's the widespread slowdown in wage growth, which many economists predict will become permanent, that's having the biggest impact on our golden years' finances, according to the study.

"Wage stagnation will have serious long-term consequences if wages resume growing at their pre-recession rate since they will never make up the ground lost during the recession," said the report, which was released by Boston College's Center for Retirement Research.

Some highlights of the study:

• Workers between the ages of 25 and 34 in 2008 (the height of the recession) will see an average drop of 4.9 percent in retirement income after age 70 — a hit to their pocketbooks of roughly $3,000 a year. Furthermore, the slowdown in wage growth will accumulate over their entire careers.
• Those between the ages of 55 to 64 in 2008 will see a 4.1 percent drop in retirement income, primarily in the form of lower Social Security benefits. This problem is compounded by the fact that many older workers who lost their jobs during the recession were forced into early retirement.
• Future retirement income will fall the most for those with the highest incomes. Among the youngest age group, for example, those in the top 20 percent income bracket will lose $7,500 annually, while those in the bottom group will lose only $400 a year.
• The decline in household income will increase the number of Americans living on limited incomes at age 70. Among people between the ages of 25 to 64 in 2008, the share with incomes below 125 percent of the federal poverty level at age 70 will increase 7.4 percent. That translates into an additional 711,000 adults living in or near poverty.

The Social Security Administration is saying goodbye to the paper check.

Beginning Sunday, anyone who signs up for Social Security benefits will have to choose an option for receiving their payments electronically.  

The two major choices for electronic payments are direct deposit, in which the government directly transfers your payment into your bank account, and a Direct Express card. That’s a debit card that automatically will be loaded up with your payment each month and doesn’t require a bank account.

The Direct Express card won’t carry a monthly fee, although you may be charged fees for certain transactions. You can find details on potential charges here.

If you are currently getting your Social Security checks by mail, you will need to switch to an electronic payment method by March 1, 2013.

The move is aimed at saving the approximately $120 million a year that the Social Security Administration currently spends on paper checks. The Social Security Administration also estimates that it will save 12 million pounds of paper in the next five years.

The SSA estimates that more than 54 million Americans will receive $730 billion in benefits this year.

Getty Images

The annual statements outlining your projected Social Security earnings may be a thing of the past.

Citing budget restraints, the administration stopped mailing the statements this month. The four-page letters, which were sent to 158 million Americans last year, cost taxpayers $70 million a year to print and mail. The move will save taxpayers $30 million this year and $60 million in 2012.

The statements are mailed three months before your birthday, so if you were born in July or later, you can stop checking your mailbox. Workers can still get an estimate of their retirement benefits using the administration's online Retirement Estimator, or they can call 800-772-1213.

The suspension of mailings might not be permanent. In a few months the administration will decide whether to provide the information online or return to issuing paper statements, said Dorothy Clark, a spokeswoman for the agency. 

The agency is undergoing severe budget belt-tightening, while at the same time working hard to reduce its backlog of disability hearings, said Social Security Commissioner Michael Astrue, when he announced the change last month during Congressional testimony (.pdf file). The agency is struggling to close more than 106,000 cases that will be 775 days or older by the end of the year

"That wait has very real implications — many people with disabilities lose their homes, medical coverage and dignity while waiting for a decision on a hearing," Astrue said. "We may not be able to keep our commitments to the American people because we do not have the necessary funding."

If you are among the optimists who believe that Social Security will still be around when you retire, you likely want to get a sense of how much money you’ll be able to count on in your golden years.

And if you’re among the more pessimistic types – and who wouldn’t be after new congressional projections showing the fund will be drained by about 2037 - you may still want to know how much you’re missing out on.

The Center for Economic and Policy Research has created a handy calculator to do just that.

The calculator actually has two elements.

The first part estimates the average family retirement income in your county, based on data from the U.S. Census department.

The second part allows you to enter in a few personal details, such as how much you make and how much you owe on your mortgage. Then, it calculates how much your monthly Social Security and other income could be upon retirement.

One nice touch: The calculator automatically converts into 2010 dollars, so you get a good sense of how much spending power that income will give you.