By Charlie Williams
Social Security celebrated its 77th birthday on Aug. 14. This year as in past years we once again find Social Security healthy and going strong, much like most senior citizens today who wear their age so well, thanks in great part to the economic protection of Social Security in their retirement years.
American workers have come to rely on Social Security more than ever, and for good reason. Study after study have shown that most workers are not financially ready for retirement. That is especially true when relying on their company to provide them with a pension, as company pensions are disappearing at an alarming rate. Efforts at saving enough for retirement have failed for far too many and they are left to rely on Social Security as their main source of retirement income.
Teresa Ghilarducci reports in a July 21 article in The New York Times that “75 percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts.” Not very much for seniors who are expected to live well into their 70s, many into their 80s, 90s and even 100s. An Aug. 7 article appearing in the U-T San Diego business section by Barbara Bry and Neil Senturia looks into overall investment returns over the last 10 years and reports that odds were long, and returns were small even for top investors, noting that, “To make it into the top 25 percent, you needed to return only 92 cents of every dollar invested with your firm.”
That is a big ouch for most investors, much less the average investor. Their findings illustrate the difficulty in making it in the investment world over these past 10 years. And it is quite clear $30,000 in savings will not ensure anything near a comfortable retirement. Faced with that fact, Social Security benefits become more important than ever and the need for workers and retirees alike to better educate themselves on how crucial Social Security has become to our economic well-being—not only in retirement, but throughout our lives.
As we celebrate this 77th year of Social Security, we discover benefits have grown quite a bit since 1987 while company retirement plans and investment prospects have failed to keep up with needed income for most people in their retirement years. Many company retirement plans have disappeared, though some were replaced with a 401(k)-type plan, which I will discuss later on in this article. While pension benefits have shrunk or disappeared over this time span, Social Security benefits have actually grown, giving a foundation of income for retirees they would otherwise not have.
Using the Social Security Average Indexed Monthly Earnings (AIME), monthly benefits payable in 1987 for a person with an average monthly income of $2,009 at age 65 received a monthly benefit of only $789. But by the year 2012 at that same amount of average earnings, retirees receive $1,618 in monthly Social Security benefits. (Source: Automatic Determinations Workers with Maximum-Taxable Earnings). The average Social Security benefit at the beginning of the year 2012 was $1,230.
Simple math tells us those paying into Social Security do much better in their retirement income than those relying on investments in the stock market. It is equally obvious that a retiree with the average savings of only $30,000 will quickly run out of their retirement savings. On the other hand, their Social Security benefits are guaranteed for the life of the retiree.
Social Security was never intended to be a person’s total income in their retirement years. Instead that was the promise of the 401(k) made in 1978 (Revenue Act of 1978) when Congress amended the Internal Revenue Code, later called section 401(k). But the promise Congress gave us at the time has never materialized. One reason is due in part to low investment returns and heavy stock market losses since 401(k)’s inception.
The latest and most heavy losses occurred in 2007-8 when the economy tanked. Far too many retirees banked on their 401(k) and other investments as their major source of retirement income, only to lose their retirement nest egg in the stock market and more often than not lose their homes to bank foreclosure, foreclosed on by the very banks who caused the economic collapse.
Not too long ago we were taught about using the three-legged stool for retirement planning:
• Social Security
• Pension
• Savings
Unfortunately, two of the legs of the stool have been broken or severely damaged, leaving only Social Security intact.
While two legs of the retirement stool have been damaged, monthly payments of Social Security benefits have never stopped or even slowed down. Nor have Social Security benefits ever been reduced, even though the economy tanked and we found ourselves in the worst recession since the Depression era, which helped in getting Congress to pass the Social Security Act in 1935.
One might think the Social Security Trust Fund would have tanked in the current economic downturn along with millions of workers’ jobs who were paying into the trust fund. Fact is monthly benefits payments under Social Security have actually increased during this economic downturn. Yes, thanks to the Cost of Living Allowance, monthly benefits have increased as recently as this year.
Looking at how well Social Security has done over these past 77 years, a good case can be made to put more money into the trust fund so we would be better able to convince Congress to increase monthly benefits payments for future retirees and relax eligibility rules.
As we celebrate Social Security’s birthday, let's also remember how well Social Security serves many millions of recipients, not only retirees but widowed children and the disabled, all of whom rely on Social Security benefits as a crucial part of their total income. The Social Security Trustees have most recently assured us the program is solvent with $2.7 trillion in surplus reserves, enough to pay full benefits to all current and future retirees for the next two decades.
So, let's celebrate the one retirement program we have come to trust over these past 77 years. Our trust in the program is reassured by the fund trustees who tell us the trust fund will remain strong and serve Americans for many years to come. Happy birthday indeed.
Charlie Williams is Chairman of the Field Mobilization Committee for the Alliance for Retired Americans and former Midwest States Political Director for the Machinists Union.
