Social Security is widely regarded as the most important social program for senior citizens. As of July 2017, according to data released by the Social Security Administration (SSA), just over 42 million seniors was receiving a monthly benefit check totaling an average of $1,370. Without this income, millions of seniors would probably be struggling to make ends meet, or perhaps living below the federal poverty level.
Unfortunately for these 42 million retirees, and the millions upon millions of workers currently in the labor force who expect Social Security to provide a comfortable retirement, this important social program isn't in the best shape. The latest report from the Social Security Board of Trustees suggests that beginning in 2022 it'll pay out more in benefits than it's generating in income. By 2034, the $3 trillion in asset reserves Social Security had in its coffers as of 2022 will have completely disappeared. If this happens, and Congress has made no effort to resolve the estimated $12.5 trillion cash shortfall between 2034 and 2091, the trustees project that up to a 23% across-the-board cut in benefits may be needed to sustain payouts through 2091.
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The scariest Social Security graphic yet
The possibility of a 23% cut to the benefits of current and future retirees is terrifying. But amazingly, it's not the most terrifying statistic about Social Security that can be found. Taking into account the potential for a future cut to benefits, a graphic from the recently released "Fast Facts & Figures About Social Security" from the SSA holds that title.
The SSA's newly released report had a lot of alarming data, including that 13.8% of elderly beneficiaries are either considered poor (living below the poverty line) or near poor (under 125% of the federal poverty level). Also, we've witnessed the average age of retired workers rise from 72.4 years in 1960 to 73.8 years in 2016. This suggests that people are living longer, allowing them to draw a benefit check from the SSA for an extended period of time.
But the scariest graphic demonstrates just how reliant seniors are on Social Security for income. In 2015, 61% of seniors relied on Social Security for at least half of their monthly income. That figure rose by 1% in 2016 to 62%. Now, half of all married couples lean on Social Security for at least half of their income, along with 71% of unmarried elderly people.
Just as appalling is that just over a third of all elderly beneficiaries rely on Social Security for 90% or more of their monthly income, including nearly a quarter of married couples and 43% of single individuals.
Here's why this data is so worrisome
The reason this data is so shocking is twofold. First, there's an aforementioned $12.5 trillion budgetary shortfall that's less than two decades away. It means that benefit cuts are a genuine possibility for the 62% of seniors counting on Social Security for half of their income, and 34% counting on it for practically all of their income. Should benefits be cut, it would almost be a certainty that senior poverty rates would rise.
Second, it means that far too few seniors have heeded the suggestion of the SSA that Social Security benefits are only designed to replace approximately 40% of working wages. This figure can be a bit higher for those with lower lifetime incomes, and a bit lower for the wealthy, but it's pretty evident with the data above that seniors are leaning extraordinarily heavy on Social Security income during retirement.
Furthermore, if Gallup's polls are any indication, baby boomers are expected to be heavily reliant on Social Security, too. An April 2017 survey from the national pollster shows that 34% of non-retirees expects Social Security to be a major source of income during retirement, which is tied for the second-highest reading since 2001. Cumulatively, four in five pre-retirees will need Social Security income to make ends meet, at least to some extent.
The lesson buried in the data
If there's a lesson to be learned from the SSA's Fact Facts data release, it's very plainly that current workers need to ensure they have a primary plan in place for their golden years, and that Social Security isn't it.
In addition to the possibility of a cut to benefits sometimes in the next 17 years, Social Security benefits have also been losing purchasing power with regularity over the past couple of decades. Not counting 2017, medical care inflation has outpaced the annual cost-of-living adjustment (COLA) passed along to beneficiaries in 33 of the past 35 years. Housing and rental inflation have topped Social Security's COLAs in recent years, too.
At best, Social Security should be thought of as a solid supplementary or secondary source of income during retirement. That means working Americans should be focusing their efforts on saving the recommended 10% to 15% of their earned income annually, as well as attempting to invest that saved income wisely. At last check, the St. Louis Federal Reserve showed that working Americans were only socking away 3.5% of their earned income, which simply isn't enough to have a comfortable nest egg come retirement.
What's more, Gallup finds that only 52% of Americans own stocks, which tied an all-time low since it began keeping annual records of stock ownership 19 years ago. While volatile at times, the stock market has proven time and again to be among the greatest wealth creators, with a historical annual return of 7%, including dividend reinvestment.
The simple way to avoid becoming just another scary Social Security statistic is to save more and invest it into high-quality stocks over the long term.
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