Tuesday, August 21, 2018
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Social Security’s Day of Reckoning Already Here

HR departments across America find themselves encouraging workers to contribute to company 401(k) plans. Their words are echoed by financial planners and retirement experts who warn that the day of reckoning for Social Security is coming, and that workers need to save for their own retirements rather than depending on government. But perhaps the message is only half right; perhaps Social Security’s day of reckoning is already here.

A recently released survey from the Employee Benefit Research Institute shows that just 45% of current retirees are confident Social Security will continue providing the same level of benefits it now does in the future. Just last year, that number was at 51%. It is clear that retirees are less confident in Social Security than they ever have been before.

So why the loss of confidence? The survey seems to indicate that retirees are concerned over Social Security’s possible insolvency. The threat of Social Security bankruptcy is nothing new to Gen Xers and younger generations – they have been hearing about it nearly all their lives – but it is a scary new reality for America’s baby boomers. And unfortunately, they are not coping well.

Saving for Retirement While Working

A couple of decades ago, while baby boomers were in the prime of their working careers, contributing to a 401(k) or pension plan was the thing to do. Pension plans that guaranteed lifetime benefits at nearly the same level as workers were currently earning were the gold standard. As for 401(k) plans, they were considered a good second option for employees who did not have access to pensions.

That all began to change in the 1980s when large, corporate employers started realizing their pension plans were unsustainable. Throughout the late 80s and early 90s, the largest among them embarked on cost-cutting early retirement strategies designed to get workers off the payroll so that they could bring an end to their expensive retirement plans.

BenefitMall, a nationwide online payroll processing and benefits administration provider based in Dallas, says that private company pensions are nearly extinct now. They explain that most companies offering retirement plans do so through the tried and true 401(k). Employees are encouraged to save for retirement while working by contributing to a retirement plan they hope will generate significant returns before they retire.

The Days of Retirement Might Be Numbered

We would hope that a combination of Social Security payments and 401(k) returns would be enough to provide for the average worker in retirement. But even that is questionable. The amount of money a person would have to pay into a 401(k) to continue maintaining his or her current lifestyle in retirement is out of reach for the average worker. And how many companies don’t even offer a 401(k) plan?

Could it be that the days of retirement are also numbered? It’s possible, especially when you consider that the whole concept of retirement is a fairly new construct. Prior to World War II, retirement was not even a thought in the minds of most Americans. People worked until they could no longer physically do so. At that point they were provided for by younger family members.

It is becoming increasingly clear that all the hope and promise of Social Security at its birth was false hope and promise. The system is not sustainable and never has been. Indeed, Social Security’s day of reckoning is already here. We see it in the reality of benefits not keeping up with inflation; we see it in the reality of younger workers preparing themselves to receive very little from Social Security when they eventually retire.

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