Against a backdrop of rising interest rates, still-elevated inflation, and a falling stock market, pre-retirees and retirees alike have elevated concerns about making ends meet in retirement. Realistically, these are valid concerns, which makes it all the more valuable to understand how retirement income might look over the next 10 years. Rather than relying on Social Security alone, it's likely that a large share of retirees will benefit from some active income as their primary careers come to an end.
Given trends in the economy, as well as constantly shifting demographics, there's great reason to believe retirement income will have a different composition in the future.
The reality of Social Security
Even though Social Security does act as a source of reliable income for most retirees, the overwhelming probability is that it won't be enough to cover all expenses in retirement. On the positive end, Social Security benefits do rise through cost-of-living adjustments (COLAs), which means they're one of the few guaranteed, inflation-adjusted income streams for retirees to depend on. This is why getting the most out of Social Security -- by either working longer or earning more during your career -- is absolutely essential.
There are also questions about the future of the Social Security program and the possibility that there will be some reduction in benefits down the line. This comes as a result of a dwindling Social Security reserve, with the SSA Trust Fund Reserve scheduled to deplete in 2035. That said, the probability of Social Security going away entirely is remote at this stage. More likely, those who wait until the mid-2030s to retire could see benefits paid at only 80% of their primary insurance amount.
This is all to say that those most likely to succeed in retirement will have logged enough working years at a high-enough earning rate to secure themselves a durable stream of income well into their 80s and 90s.
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Personal savings will matter more
Because company-sponsored pension plans have gradually gone out of style over the last several decades, a greater reliance has been placed on personal savings when it comes to generating retirement income. This means that maxing out 401(k)s and IRAs will pay huge dividends (both literally and figuratively) when it comes to retiring in the 2030s. Those with large personal savings to their names will be in a strong position to supplement Social Security and meet ever-rising expenses.
Unfortunately, stock market returns are variable, which means we have no idea how personal portfolios will fare over the next decade. But we do know those who maximize contributions to their retirement accounts as soon as they can will be better suited to tolerate a low-return environment.
Active income will be more common
Given the rise of remote work and of the gig economy, earning even a small amount of active income has never been easier. In real terms, even earning an additional $10,000 to $20,000 per year in retirement can make a huge difference in most spending plans. Since it no longer requires a long commute or many hours on your feet, earning a small income can even be an appealing way to spend a few hours a day in retirement. Plus, as research has revealed, those who stay intellectually active in retirement tend to report higher levels of happiness and also tend to live longer on average.
Another piece to this equation is that life has gotten considerably more expensive than even a few years ago. These costs will continue to increase. But earning an active income even after you've retired from your primary career can be a major method of defense -- especially when paired with Social Security and a few investment accounts.
Take retirement into your own hands
The main takeaway is that the possibility of a fully funded retirement is going to lie with savers and their individual behavior. Social Security is still going to be a good option for maintaining a income floor, but the remainder of retirement income will need to be personally earned. Gone are the times when a company pension and Social Security would be enough to support a family in retirement. The stakes are much higher now and will be for the foreseeable future, but workers and savers alike can still expect quality outcomes with enough effort and advance planning.
