The folks at the Employee Benefit Research Institute, or EBRI, are real party poopers, frequently releasing depressing data about how millions of Americans are underprepared for retirement. Those statistics serve a useful purpose, though, encouraging Americans to make constructive changes. Recently, though, they released some sobering data that policy makers should act on -- because it shows how critical to many Americans' well-bring Social Security is.
The reason action is needed is because the Social Security trust funds are headed toward insolvency in a number of years. (It's estimated that it will happen between 2033 and 2037.)
The savings shortfall
The EBRI's recent report reviews Retirement Savings Shortfalls that it calculates, based on its proprietary Retirement Savings Projection Model. The total national shortfall is calculated at $4.13 trillion, and still quite significant when broken down to the individual level. It varies according to many factors, though, such as age, gender, marital status, and so on. For example, it's $19,304 per individual in married households, $33,778 for single males, and $62,734 for single females.
Don't let yourself think that the numbers aren't so bad, though. The EBRI points out that since many Americans are sufficiently on track for a solid retirement, their shortfalls are zero, and thereby bring down the national average numbers. When only those at risk are examined, the shortfalls rise -- to $71,299 for individuals in married households, $93,576 for single males, and $104,821 for single females. Those are rather significant sums.
The Social Security effect
Another thing to know about those numbers is that they assume that Social Security benefits won't be reduced or eliminated in the future. They rise significantly if reduced benefits are factored in, and, "If Social Security retirement benefits are assumed to be eliminated in 2015, the aggregate deficit increases by 88% to $7.87 trillion." Yikes, eh? Just imagine how that will affect the millions of Americans whose retirements are already at risk.
It will help to understand how important Social Security is by reviewing some eye-opening data from the Social Security Administration itself:
- Nine out of 10 people aged 65 and older receive Social Security benefits.
- Social Security benefits represent about 38% of the income of the elderly.
- Among elderly Social Security recipients, 52% of married couples and 74% of unmarried people receive 50% or more of their income from Social Security.
- Among elderly Social Security recipients, 22% of married couples and about 47% of unmarried people rely on Social Security for 90% or more of their income.
Clearly, for many Americans, Social Security is a very critical part of their retirement security. For nearly half of all single and elderly recipients, it represents at least 90% of the income on which they survive.
Health and longevity
The EBRI study revealed a few other important contributors to retirement savings shortfalls. Nursing-home care and home healthcare costs, for example, were significant. When EBRI factored them out, shortfalls fell by an average of 74% -- just about three-quarters! This is a great reminder that the healthier we can keep ourselves, the better off we may be, financially.
Longevity is another major issue, because those who are lucky enough to live significantly longer than average can find themselves with more life left than money. The quartile of people who live the longest have a shortfall that's nearly 15 times larger than the quartile of people with the shortest longevity.
It's not likely that Social Security will go away, but letting its benefits get reduced due to insolvency remains on the table, unless steps are taken to shore up the system. For each of us, the most useful takeaway is that the more we can sock away on our own for our retirements, the more secure they will likely be. Even if Social Security is maintained at current levels, it's not the most generous stipend to live on, with the average monthly benefit for retirees recently at just $1,328. Even that sum, though, is clearly very important to many people.