The Social Security program has been around for almost 80 years, and over that time, it has evolved to play a much more central role in the way Americans plan for their retirement. Even in just the past half-century, many of the aspects of retired life that many Americans took for granted have seen a vast transformation, and without Social Security, many of those changes might never have occurred.
Recently, the Social Security Administration came out with a report on Social Security (link opens PDF) that compared aspects of the program from 1962 to 2012. The findings reveal many ways in which Social Security has changed the retirement landscape, including some that at first glance might seem completely unrelated to the program. Let's take a closer look at the SSA report and what the next 50 years might bring for Social Security.
What the SSA discovered about Social Security
The SSA report looked closely at the sources of income that Americans relied on at age 65 and later. In 1962, more than two of every three Americans of retirement age received Social Security income, already making it a key element of financial planning for retirement. By contrast, only about half of all Americans received income from assets such as investment portfolios or real estate, and 36% of Americans of retirement age still earned money from work in order to make ends meet.
By 2012, Social Security had become an even more important source of retirement income, with 86% of all Americans over 65 getting some form of benefits from the program. Meanwhile, those who get income from investment assets represent about the same fraction of the American public as they did 50 years earlier.
Changing expectations for retirement income
Even more notable than Social Security's rise in importance is the impact it has had on worker expectations. In 1962, just one out of every 11 Americans received money from private pensions from their employers, and roughly the same number got income in retirement from government-sponsored pension plans. Yet as Social Security became more popular, Americans realized the value of dependable monthly income after they stop working. In response, employers started looking at ways to mimic Social Security's payouts, and the percentage of those receiving private pensions has tripled in the past half-century. Pensions for government employees have also grown more popular, reflecting the value workers place in financial security in retirement.
Moreover, the expectation of leaving the workforce completely has grown since 1962, with fewer people getting income from earnings. A growing portion of the population is able to retire without work income, either by choice or by necessity.
Showing retirees the money
While retirees can get income from a variety of sources, they rely on those different sources to widely varying degrees. When you look at actual aggregate income received, Social Security, work income, and pensions have all increased in influence, while the proportion of income from investments has fallen sharply.
These results confirm popular perceptions about how most Americans haven't done much retirement planning. Those who haven't saved for retirement can't expect their investment portfolios to be large enough to produce much income, and in response, more Americans have kept working beyond age 65 in order to make ends meet.
In the future, workers can expect to rely on Social Security even more. As more private employers have stopped offering pension plans to their workers, more of the onus on saving for retirement has shifted to employees themselves. Although some dutifully contribute to their 401(k) plans and other retirement savings vehicles on a regular basis, many don't -- and the decrease in pensions over time will force those who don't save enough on their own to become more dependent on Social Security.
Social Security has come a long way in the past 50 years, and the program has had an immense impact on retirement in America. Despite concerns about its financial future, Social Security promises to remain an essential part of retirement planning for Americans for the next 50 years and beyond.
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