The State of Social Security and Savings

In 2021, more than 65 million Americans received Social Security benefits totaling, in aggregate, more than one trillion dollars. In April of each year, the trustees of the Social Security trust fund are supposed to report on the current and projected status of this highly relied upon program. Last year, the report was not published until August 31, but we are still hopeful these extensive reports will be released sooner this year. Regardless, most experts agree that the summary will be inline with 2021, which predicted the combined asset reserves of Social Security’s Old-Age and Survivors Insurance and Disability Insurance Trust Funds would become depleted in 2034, with 78% of benefits payable at that time.

This harrowing reality is not a new epiphany. It was around the year 2000 when the tipping point was documented, showing the outflows of the Social Security system outpacing the inflows. We know the number of workers retiring each year (and becoming Social Security beneficiaries) continues to increase more rapidly than the number of workers replacing them. This phenomenon has been exacerbated thanks to the recently coined ‘Great Resignation,’ in which over 3.4 million American workers dropped out of the work force since early 2020. In addition, American lifespans continue to lengthen, requiring larger than expected payments per beneficiary. A deadly combination for an already wobbly actuarial system.

Unfortunately, and perhaps not surprisingly, very little political progress has been made over the last two decades to remedy this obvious math problem of the Social Security system as we know it. Difficulties for the system are on the horizon and a course correction is inevitable, but there is no way benefits will go away completely. There are simply too many elderly citizens relying on this program for a significant portion of their retirement security.

A silver lining is the United States retirement system, which has been up and running for several decades to help ensure retirees won’t be completely reliant on the Social Security system. Although savings rates need to continue to increase, 401(k) account balances are growing. Over the last year, Americans’ average savings levels have jumped 13%. According to Vanguard’s 2021 How America Saves Survey, the average 401(k) balance for ages 45-54 is now $161,079 and moves up to $232,379 for the 55-64 age group. It is hard to determine how much the average account balance should be for such a large population set, because personal retirement savings goals differ based on the type of lifestyle one may want to pursue during retirement.

Despite increased saving levels, recent impacts of inflation have grabbed the attention of retirees. In June 2021, 41% of those surveyed indicated they were “very concerned” or “somewhat concerned” that the value of their retirement accounts might not keep pace with inflation. Perhaps John D. Rockefeller was on to something when he answered the question “How much money is enough?” by saying “just a little bit more.” Regardless, it is encouraging to see average retirement plan balances continuing to climb as the Social Security projections continue to wane.

With all of the complexities revolving around our Social Security system, it can be easy to feel discouraged or disenchanted. Increasing numbers of retirees with longer life spans, decreasing numbers of contributing workers, and recent inflationary pressures create an ominous picture for the Social Security system as we know it. Fortunately, the retirement plan industry and prevailing wisdom of large portions of the US working population have led to decades of savings in order to increase their chances of retiring with dignity. In total, American retirement account balances now exceed $32 trillion dollars, and that is significant progress by any standard! The Greenleaf Trust Retirement Plan division remains proud to assist our corporate clients to ensure the more than twenty thousand participants we serve are more prepared for retirement.