A recent study has shed light on the reliance of many American workers on Social Security as a primary source of retirement income, despite its inadequacy in covering monthly expenses.
According to a survey conducted by MFS, a global investment management firm, a staggering 87% of workers anticipate Social Security to contribute to their retirement income. However, 68% of respondents expect this income to make up less than half of their total retirement funds, while 21% believe it will cover at least half of their expenses in retirement.
Contrastingly, retirees report that Social Security only accounts for approximately 41% of their monthly income, leaving a substantial portion to be supplemented by personal savings, investments, and other financial sources.
The average retired worker presently receives around $1,976 monthly from Social Security, as per the Social Security Administration, while retired households typically spend about $5,400 per month, based on data from the U.S. Bureau of Labor Statistics.
This disparity underscores the insufficiency of relying solely on Social Security to meet retirees’ financial needs.
Retirement often does not unfold as planned, with many retirees leaving the workforce prematurely due to health concerns, caregiving responsibilities, or unexpected job loss. MFS found that nearly half of retirees retired earlier than intended, with only 15% having savings upon retirement.
Moreover, the availability of programs facilitating a gradual transition into retirement is limited, with just 22% of plan sponsors offering such initiatives, according to MFS.
While prolonging one’s working years may appear to be a solution for insufficient savings, it is not always a viable option. A growing number of individuals are confronting the reality of delayed retirement due to financial insecurities, with 51% of employed Americans aged 65 and older expressing no plans to retire, as revealed by an analysis conducted by Asset Preservation.
Looking Ahead: Uncertainties Surrounding Social Security
With existing retirees grappling with the gap between their expectations and reality, effective retirement planning has become more crucial than ever. Adding to the uncertainty is the future of the federal benefits program.
As per the most recent trustees report from the Social Security Administration, released in June, the trust fund reserves supporting benefit payments are projected to be depleted by 2033. At that juncture, incoming payroll taxes are predicted to cover approximately 75% of benefits.
If no action is taken, all beneficiaries could face a nearly 25% reduction in benefits. While Social Security is not expected to go bankrupt, benefits will be disbursed at reduced levels in the absence of changes. Concern regarding the program’s future is widespread, with 80% of workers and 70% of retirees expressing apprehension about significant alterations to the U.S. retirement system and the potential impact of impending benefit cuts on their retirement income, based on the MFS survey.
It is evident that Social Security remains a vital component of retirement income; however, it is increasingly insufficient as a standalone source. Workers must plan with realistic expectations and prepare for a future where Social Security payments may fall short of their anticipated needs.
