We’ve previously documented that the Social Security system is going broke. Fortunately for America’s retirees, Congress, the president and those in the Social Security Administration (SSA) can’t allow that to happen.
No one has put much effort into saving Social Security, but, as baby boomers retire and put a greater strain on the system, changes will become necessary.
One reason is the essential role that Social Security now plays for America’s retirees.
The SSA found that, for 62% of elderly retirees receiving benefits, Social Security account for at least half of their monthly income. About a third count on Social Security for 90% or more of their monthly income.
In a 2016 study, The Center on Budget and Policy Priorities estimated that the poverty rate for seniors would exceed 40% if Social Security income were no longer available. Currently, the poverty rate for seniors is about 8.8%.
Planning for Retirement
This speaks to the importance of planning for retirement, which few Americans have adequately done. Financial advisors typically suggest looking at retirement income as a three-legged stool that falls over when one leg is missing. Social Security is one leg, of course, but the other legs are a pension and personal savings.
In the days when American workers often stayed at one job for their entire lives and retirement typically lasted for a small number of years, defined benefit pension plans were common. Retirees typically received set benefits for as long as they lived.
As Americans lived longer and changed jobs more often, most defined benefit plans were replaced with defined contribution plans, in which employees decide how much to contribute to retirement and where to invest.
Even though such plans offer important tax benefits and employers typically provide a match for employee contributions, most Americans have not adequately taken advantage of their plans.
And so we have a generation of baby boomers retiring, in many cases, without adequate retirement income. With Social Security playing a bigger role than it should for many retirees, we’ll explore the benefits it provides, focusing on what to expect in 2018.