Most undergraduates are more concerned with finding a job than preparing for retirement. However, Dr. William Reichenstein, the Pat and Thomas R. Powers Chair professor in Investment Management and co-founder of Social Security Solutions, said students should start preparing with their first job out of college.
Social Security Solutions is a Leawood, Kan., financial-planning firm. Reichenstein created a calculator with William Meyer.
The calculator’s software provides an estimate of benefits an individual can receive based on the input of personal data.
Many questions, such as birthday, primary insurance and life expectancy, must be addressed for the calculator to provide an accurate estimation.
The Social Security program is funded through payroll taxes, currently 4.2 percent, which are placed into the Social Security Trust Fund while the government along with the Federal Reserve Board manages payments.
Based on the year one were born, retirement benefits may currently begin as early as age 62, although the full retirement age is 66.
If a person retires at 66, they get the full benefits, which are benefits based on their highest 35 years of earnings.
However, if a person retires at 62, they only receive 75 percent. If you do not retire until 70, based on the current laws, you will receive 108 percent.
In an annual report done in April, the U.S. Government Trustees said the fund that helps finance benefits for 44 million senior citizens and survivors of deceased workers would be exhausted by 2035.
Reichenstein predicts a form of Social Security benefits will continue; however, it will be changed.
He predicts one of the things that will change will be a higher full retirement age, which he said could be 69 or 70 for the current generation of college students.
Reichenstein said he believes the current retirement age needs to change because the life expectancy is now higher.
Reichenstein said people under the age of 55 should not attempt to use the calculator because he believes laws and benefits that apply now will not for this generation.
“First of all, realize Social Security is not supposed to be your retirement savings,” Reichenstein said.
“Basically, it provides subsistence level of income. It is going to help you not starve to death. If you want a nicer lifestyle, then it is your job to save for your retirement.”
An article written by Reichenstein and Dr. Tom Potts, professor of finance and director of the financial services and planning program, gives guiding principles to follow when making financial decisions.
The article, titled “Clueless: What Graduates Need to Know About Making Financial Decisions,” is meant to help people decide whether to enter their firm’s retirement plan, how much to save and where to invest those funds.
“The largest asset for a young person is themselves because of their tremendous earning potential,” Potts said.
“I tell my students to make sure three years after you graduate, you are more valuable than when you graduated. That is one of the main pieces of advice I give to students, is make sure you add to your human capital.”
Potts said, during your first year you will be learning a lot adding to your human capital value.
Another way to increase your human capital would be to earn a graduate degree. That way other companies will want to hire you away from your current employer.
Potts said after graduation, students should put themselves on a budget, make rational decisions in terms of what they buy and when, look at insurance to see if it is adequate and start a plan for long-term needs like retirement.
Access to the calculator can cost between $19.95 and $249.95.
Several levels are available, ranging from a personalized report, interactive tools and education, advice from an expert and advice from an expert plus assistance with application process.
The program can be found at: www.socialsecuritysolutions.com.