The Role of Social Security in Retirement

Why It Matters:

  • The Social Security Administration indicates most financial professionals say clients need about 70% of preretirement income to maintain their standard of living.
  • The agency estimates its benefits likely will provide for 40% of preretirement income.
  • About 30% of American workers say preparing for retirement makes them feel “mentally or emotionally stressed,” according to the Employee Benefit Research Institute.

Chase Squires tkc.profilePicture Written by: Chase Squires | Transamerica
April 23, 2018

2-3 Min readClock Icon

When you think about retirement, are you counting too much on Social Security?

Don’t get us wrong, it’s an amazing benefit. But even the Social Security Administration (SSA) acknowledges it’s probably not enough to satisfy your retirement income needs.

The agency says that while financial professionals encourage workers to develop a strategy that provides 70% of preretirement earnings in retirement to maintain their standard of living, Social Security estimates its benefits will only replace about 40% (even less for higher earners).

By that standard, a couple earning $100,000 a year anticipating Social Security retirement benefits would need to make up $30,000 a year, every year, in retirement.

And while Social Security says its trust funds are expected to last until 2034, allowing the agency to pay all of its promised benefits, the flip side is that after 2034 (without Congressional action) it will only be able to pay about 77% of benefits. So even that 40% block of retirement income could see a 23% reduction.

Another mention from the SSA that may be telling: A pension is one of the three elements of its hypothetical retirement portfolio. That may be optimistic, considering only 15% of workers in private industry have a pension, down from 87% in 1979 when the U.S. Department of Labor did its first survey.

Feeling uneasy?

Add it up and the Employee Benefit Research Institute says six out of 10 Americans feel very or somewhat confident about having enough money for retirement, meaning four in 10 do not.

“In addition to lacking confidence, three in 10 workers report that preparing for retirement causes them to feel mentally or emotionally stressed,” the Institute found.

American workers may need some help learning to save. The Federal Reserve Bank of St. Louis reports the American personal saving rate in January, 2018, was 3.2%, down from a high of 17% in 1975. And the Federal Reserve reported 44% of adults say they could not cover a $400 emergency expense, or that they would cover it by selling something or borrowing.

A little help here

Through its website Retire On Your Terms, The National Retirement Planning Coalition — made up of dozens of prominent financial companies and advocacy organizations — has savings tips for every age:

Students: Even though they aren’t making much money, students can save a few cents (literally, consider a jar to store loose change), build good habits, and learn about budgeting.

20-30: Focus on budgeting and wise spending, learn about compound interest and get a jump on investing, and learn about building good credit.

30-50: Budgeting gets a lot tougher when you add children and a mortgage, but it’s important. The coalition says investing should become a priority, and it’s a good time to set retirement goals (maybe a time to talk with a financial professional).

50-60: Hone your retirement strategy by focusing on a target retirement age. IRS rules allow those over 50 to put aside extra amounts in retirement vehicles such as a 401(k) or individual retirement account (IRA). This can also be a good time to learn about Social Security and Medicare, so you’re not confused later.

60-70 (and we hope, beyond): Think about how you’ll live in retirement. Do you plan to travel? Downsize a house? And as you make choices about a retirement lifestyle, you may be faced with a new wrinkle: after years of saving and investing, have you crafted a withdrawal strategy?

Retire On Your Terms also links to a suite of retirement calculators that can help you better understand budgeting, annuity income, life expectancy, and retirement income.

Back to Social Security

As for that Social Security income, understanding how big (or small) your monthly check will likely be is easy with Social Security’s online “myAccount” feature. Once you’ve signed up online at ssa.gov/myaccount, you can see benefit estimates based on your actual reported income.

And if you don’t like what you see, remember you can ensure you get your full benefit by waiting until your full retirement age (FRA) — the age varies, but the highest is for those born in 1960 or later, 67 — to claim benefits or give yourself a “raise” by waiting to claim. Your monthly benefit increases the longer you wait, up to age 70. Learn more with Transamerica’s free Field Guide to Social Security.

Things to Consider:

  • If you’re having trouble saving money, there are online resources available, and a financial professional may also be able to help.
  • Those stressed by retirement worries aren’t alone. There are plenty of people in the same boat.
  • If you want a personalized estimate of your Social Security retirement benefits, you can open an account at ssa.gov/myaccount

Neither Transamerica nor its agents or representatives may provide tax, investment, or legal advice. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely on tax and legal advisors and financial professionals regarding his or her own particular situation and the concepts presented herein.

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