DFM News is hosting a forum entitled Understanding Social Security this Friday, November 4th at Arsht Hall on the University of Delaware’s Wilmington campus. The event is open to the public and will be available via live webcast at DFM News.
This week, DFM News will be offering a variety of stories and commentary in preparation for Friday’s discussion. Today, Widener University economics professor Eric Brucker discusses the findings of a study of senior citizens and Social Security – the Widener Elder Pennsylvanian Study – and what it may tell us about the future of Social Security:
Over 40% of retirees primarily depend upon Social Security
In 2007 the Widener Elder Pennsylvanian Study discovered that 46% of the retired Pennsylvanians reported that Social Security was their largest source of retirement income. In 2011 the percentage was 43% – not significantly different. Large numbers of retirees depend upon Social Security. Furthermore more than 50% of the retirees over age 70 and 60% of the women over 80 said that Social Security was their largest source of income.
Individuals relying on Social Security are less well off than other retirees.
Those who are most dependent on Social Security were asked to rate their ability to pay everyday bills. Fifty percent reported that their ability was either “fair” or “poor” as compared to 21% of all other retirees. Sixty percent of the Social Security group said that their retirement income was less than sixty percent of the working income while only 39% of the other retirees put this percentage below 60.
Other sources of retirement income are becoming less generous.
Elder non-retired Pennsylvanians were asked to project what the largest source of their future retirement income will be: Social Security, employer pensions, 401k and IRA accounts or private savings.
It is interesting that while the percentage of the retired that indicated that their largest source of retirement income had not significantly changed, the percentage of the non-retired who expect to have Social Security as their largest source of retirement income increased from 18% in 2007 to 28% in 2011. Those projecting 401k income as their largest source of retirement income fell from 38% to 31%. Apparently many individuals are having second thoughts about equity account investments after the severe bear stock market. In 2007 29% projected pension income as their largest source of retirement income and in 2011 there was a slight decrease to 25%. However it should be noted only 25% of those retiring from private sector, but 57% of the public sector retirees, said that their largest source of retirement income was from pensions. Income from private savings remained essentially constant at 16%
Social Security Benefits Are Likely to Become More Important
It is plausible that the percentage of households reporting that Social Security is the largest source of retirement income will increase in the near future. One reason is that private corporate pensions and defined benefit programs are being phased out and public pensions are under increased scrutiny.
The Great Recession has severely impacted all forms of public and private savings. The stock market has yet to recover to its previous all time highs, home owners’ equity continues to fall as the housing market has yet to stabilize, and the Federal Reserve is committed to keeping interest rates very low. While low interest returns should help increase overall economic activity, the lack of substantial investment returns reduces the retirement income flow on saved assets. At one time an extremely conservative retiree might choose to place their savings in FDIC insured CD’s. With current 1 to 5 year CDs yielding less than 2% this strategy leaves the investor well behind the most recent 3.5% increase in the consumer price index.
Alicia Munnel and others encourage those who are near retirement age to consider working for two or three more years before retiring and applying for Social Security benefits. The annual value of their benefits will increase until age 70 and their retirement income needs will be reduced by two or three years. Regretfully elder unemployment rates are at new highs and many elders are discovering that this strategy of working longer is not as viable as it might have been. In fact, there is some evidence to suggest that the percentage of 62 to 65 year old elders applying for early Social Security benefits is on the rise due to the inability to find work.
Inflation is What Should Scare us All
Social Security benefits are formally indexed to the rate of inflation. If the rate of inflation increases, it is likely that more families will discover that their inflation adjusted Social Security benefits are larger than those from other non-inflation adjusted assets.
Why should we care more now, than before the “Great Recession”, about Social Security?
It is the major source of retirement income for more than 45% of the elderly. Without Social Security they would be unable to purchase the basic necessities of retirement living. For those who count on retirement income from pensions, IRAs or private investments, Social Security makes it possible for them to go beyond the basic necessities and enjoy a fuller life. Looking forward to the immediate future it is likely that Social Security benefits will account for the largest source of retirement income for increasing percentages of households.
Understanding Social Security: What one study shows
DFM News is hosting a forum entitled Understanding Social Security this Friday, November 4th at Arsht Hall on the University of Delaware’s Wilmington campus. The event is open to the public and will be available via live webcast at DFM News.
This week, DFM News will be offering a variety of stories and commentary in preparation for Friday’s discussion. Today, Widener University economics professor Eric Brucker discusses the findings of a study of senior citizens and Social Security – the Widener Elder Pennsylvanian Study – and what it may tell us about the future of Social Security:
Over 40% of retirees primarily depend upon Social Security
In 2007 the Widener Elder Pennsylvanian Study discovered that 46% of the retired Pennsylvanians reported that Social Security was their largest source of retirement income. In 2011 the percentage was 43% – not significantly different. Large numbers of retirees depend upon Social Security. Furthermore more than 50% of the retirees over age 70 and 60% of the women over 80 said that Social Security was their largest source of income.
Individuals relying on Social Security are less well off than other retirees.
Those who are most dependent on Social Security were asked to rate their ability to pay everyday bills. Fifty percent reported that their ability was either “fair” or “poor” as compared to 21% of all other retirees. Sixty percent of the Social Security group said that their retirement income was less than sixty percent of the working income while only 39% of the other retirees put this percentage below 60.
Other sources of retirement income are becoming less generous.
Elder non-retired Pennsylvanians were asked to project what the largest source of their future retirement income will be: Social Security, employer pensions, 401k and IRA accounts or private savings.
It is interesting that while the percentage of the retired that indicated that their largest source of retirement income had not significantly changed, the percentage of the non-retired who expect to have Social Security as their largest source of retirement income increased from 18% in 2007 to 28% in 2011. Those projecting 401k income as their largest source of retirement income fell from 38% to 31%. Apparently many individuals are having second thoughts about equity account investments after the severe bear stock market. In 2007 29% projected pension income as their largest source of retirement income and in 2011 there was a slight decrease to 25%. However it should be noted only 25% of those retiring from private sector, but 57% of the public sector retirees, said that their largest source of retirement income was from pensions. Income from private savings remained essentially constant at 16%
Social Security Benefits Are Likely to Become More Important
It is plausible that the percentage of households reporting that Social Security is the largest source of retirement income will increase in the near future. One reason is that private corporate pensions and defined benefit programs are being phased out and public pensions are under increased scrutiny.
The Great Recession has severely impacted all forms of public and private savings. The stock market has yet to recover to its previous all time highs, home owners’ equity continues to fall as the housing market has yet to stabilize, and the Federal Reserve is committed to keeping interest rates very low. While low interest returns should help increase overall economic activity, the lack of substantial investment returns reduces the retirement income flow on saved assets. At one time an extremely conservative retiree might choose to place their savings in FDIC insured CD’s. With current 1 to 5 year CDs yielding less than 2% this strategy leaves the investor well behind the most recent 3.5% increase in the consumer price index.
Alicia Munnel and others encourage those who are near retirement age to consider working for two or three more years before retiring and applying for Social Security benefits. The annual value of their benefits will increase until age 70 and their retirement income needs will be reduced by two or three years. Regretfully elder unemployment rates are at new highs and many elders are discovering that this strategy of working longer is not as viable as it might have been. In fact, there is some evidence to suggest that the percentage of 62 to 65 year old elders applying for early Social Security benefits is on the rise due to the inability to find work.
Inflation is What Should Scare us All
Social Security benefits are formally indexed to the rate of inflation. If the rate of inflation increases, it is likely that more families will discover that their inflation adjusted Social Security benefits are larger than those from other non-inflation adjusted assets.
Why should we care more now, than before the “Great Recession”, about Social Security?
It is the major source of retirement income for more than 45% of the elderly. Without Social Security they would be unable to purchase the basic necessities of retirement living. For those who count on retirement income from pensions, IRAs or private investments, Social Security makes it possible for them to go beyond the basic necessities and enjoy a fuller life. Looking forward to the immediate future it is likely that Social Security benefits will account for the largest source of retirement income for increasing percentages of households.