What does your retirement plan encompass? If you’re a prudent investor, you have something like an IRA or perhaps a 401(k) to help you save for your future. For most Americans, however, retirement planning still relies heavily on the promise of Social Security—and that may be a problem.
Now, to be fair, most Americans still like Social Security, or at least the idea of it. That’s what a recent AARP study found. While Americans across age groups say that they like the program, many are confused about its actual financial outlook. What’s more, a lot of us are skeptical about its ability to provide any kind of meaningful retirement benefits. They’re right. For members of our generation, Social Security is less like a safety net and more like a “Youth Tax.”
What People Think About Social Security
According to the poll, a huge percentage of Americans—82 percent, to be exact—say that Social Security is ultimately good, and 66 of all respondents—spanning age groups and political affiliations—call it an important government program.
And yet, if the study reveals Social Security to be popular, it also reveals it to be quite precarious. Many Americans are unaware that Social Security’s reserve is on track to be completely depleted by 2034. Meanwhile, an overwhelming majority—some 70 percent—believe that Social Security could be reformed to make it stronger.
The Truth About Social Security
Actually, that’s putting it mildly. Social Security has a number of weaknesses that the AARP poll barely hints at—and that many Americans remain in the dark about. The study finds that 80 percent of all age groups now rely on or plan to rely on Social Security for their retirement income—but think about that in light of the following:
- A major structural financing gap means that Social Security’s reserves are indeed scheduled to run out within the next 20 years.
- If Social Security’s reserves are depleted, today’s workers (members of our generation) will still receive payments, but not full ones. Don’t expect to get more than three quarters of the promised benefit.
- Social Security is currently running on a cash deficit, and will continue to run on a deficit until its trust funds run out.
The bottom line: Young people are—if the AARP poll is to be believed—planning on using Social Security benefits to fund their retirement. That’s a nice idea in theory, but the numbers themselves are pretty brutal and suggest that today’s workers will not receive nearly the kind of benefit they may be expecting. In other words, those depending on Social Security in order to retire may be in for a horrible surprise if action is not taken.
Acting on Social Security
But what should that action be? We’ll break it into two parts. First of all, today’s workers cannot rely on Social Security alone to fund their retirement; if you don’t have a solid financial plan, including an IRA or some other retirement savings account, then you may not be able to retire nearly as comfortably as you might like.
Second, Social Security reform is vital. Americans are right to see this as a program that is both worthwhile and in need of saving, and saving Social Security is possible. In fact, most reform plans that have been proposed would grow benefits while actually enhancing the impact of Social Security in low-income recipients.
The question is, what will you do to show your support for one of these plans—and how will you encourage lawmakers to do the right and responsible thing?