For many senior citizens, social security has been a financial lifesaver.
According to an analysis from the Center on Budget and Policy Priorities, Social Security keeps an estimated 22.1 million people, including 15.3 million retired workers, out of poverty each month as due to the benefit they receive. Without this guaranteed monthly payout, it’s estimated that the elderly poverty rate would be much higher, rising from around 9% today to north of 40%.
The average Social Security benefit is barely above the federal poverty level
Seniors who find themselves solely reliant on Social Security as a primary income source during retirement are not in a good situation.
While you may know Social Security was not designed to make you rich, the average Social Security benefit is probably lower than you realize. According to data from the Social Security Administration (SSA), the average retired worker was bringing home $1,461.31 a month as of the beginning of 2019. Over a 12-month period, this works out to $17,535.72 annually.
By comparison, the federal poverty level for a single individual in 2019 is $12,490. This means that the average retired worker is receiving only 40% more than what the federal government considers a poverty-rate income level.
This should worry you given that more than 3 out of 5 of today’s seniors rely on Social Security to account for at least half of their income. Also, about 84% of non-retirees in an October Gallup poll expect to be reliant in some capacity on the program when they retire.
Social Security isn’t much better for the disabled
The data is even more worrisome for the long-term disabled and survivors of deceased workers, who, combined, make up close to 1 out of 4 beneficiaries.
Nondisabled widows and widowers were bringing home $1,388 a month as of the beginning of the year, or $16,656 annually. That’s 33% above the federal poverty guideline in 2019. Meanwhile, disabled workers were earning even less per month: an average of $1,233.70. Over a full year, this amounts to $14,804.40, or merely 19% above federal poverty status.
If you add up every monthly benefit check issued, and the average Social Security payout of $1,342 ($16,104 a year) is only 29% higher than the federal poverty level.
Understand the Social Security guidelines
One of the most important guidelines you should be aware of is the SSA’s estimation of what the program can do for you during retirement.
According to the SSA, Social Security is designed to replace, on average, 40% of a worker’s wages during retirement. This suggests that lower-earning workers could have a somewhat higher percentage of wage replacement, while well-to-do workers are liable to see a lower percentage of replacement during their retirement years.
You shouldn’t misunderstand this point, SSA doesn’t view Social Security as a primary income source during retirement.
Neither should you.
Unfortunately, most Americans are really poor savers relative to other industrialized countries.
With the exception of about 13 months over a 25-year span dating back to 1993, the seasonally adjusted personal saving rate has consistently been lower than 8%, per St. Louis Federal Reserve data. That compares miserably to most industrialized countries, where personal saving rates are north of 10%. In China, the gross savings rate topped 46.4% in December 2017. Due to the lack of saving there is an inordinately high reliance on Social Security income during retirement.
You can’t rely on the government to fix social security
I have said this before, you can’t count on Congress to save your retirement.
In the past, in 1983, lawmakers came to the rescue of what had been a struggling Social Security program. Facing the projected depletion of its asset reserves by the end of the year, the Reagan administration passed bipartisan measures designed to bring in additional revenue (gradual payroll tax increases and the introduction of the taxation of benefits) and reduce lifetime benefits (the gradual increase in the full retirement age). Retirees today, can’t count on lawmakers to come to the rescue and expand Social Security benefits.
Democrats and Republicans in Congress are arguably more divided than they’ve ever been. This does not bode well for making any positive changes to America’s most important social program.
If anything, it likely that benefits may weaken over time. With the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) remaining the program’s inflationary tether, costs such as medical care and housing, are continually underweighted, while less-important expenses, such as education, entertainment, and apparel, are given more credence. In short, the purchasing power of Social Security dollars continues to decline.
The American worker can’t count on Congress to fix their retirement problems
Simply put, your financial future is in your hands. Even though to a limited extent, Social Security will be there for you when you retire, you shouldn’t count on the program as being any more than a minor income source.