The proverbial “three-legged stool” of retirement funding traditionally comprised Social Security, a company pension and personal savings, but that stool has been wobbly for quite some time. In fact, the traditional pension has been replaced largely by employer-sponsored 401(k) plans. This development firmly places the responsibility of two of the three stool legs on individual savings.
In addition, this old-school stool has not kept up with one of the greatest achievements of the last 50 years: longer life expectancy. The Social Security program hasn’t kept up; current estimates project funding will be able to pay full benefits only until 2035.1 Presently, there are various solutions proposed for shoring up funding for Social Security, including eliminating the income tax limit ($127,200 in 2017)2 and increasing the full retirement age to 69.3
Pensions are experiencing challenges as well. Despite the efforts of the Pension Protection Act (PPA) passed in 2006, this leg of the stool is still on uneven ground and the funding relief it does provide is scheduled to end in 2020.4According to one recent report, state and local pension funds in the U.S. are facing a $1.5 trillion shortfall in worker benefits.5
Company-sponsored retirement plans and individual savings haven’t exactly covered the gap vacated by pensions, either. A recent survey found that only 69 percent of workers expect to receive retirement income from 401(k)s, 403(b)s and IRAs. In fact, only 16 percent of workers strongly agree that they are building a retirement “nest egg” substantial enough to support their retirement needs, and 45 percent of baby boomers expect a decrease in their standard of living when they retire.6
The outlook may appear dismal, but remember that these are national numbers. What’s most important are your own numbers, including your personal savings rate, the growth potential of your investment portfolio and other retirement assets, and your ability to work longer to help save more and increase your Social Security benefits. We’re happy to sit down with you to review your current financial situation and help create strategies utilizing a variety of investment and insurance products that can help you work toward your financial goals.
Many of today’s retirement experts recommend what’s now considered the “fourth leg” of that retirement stool: continued employment. For those who can, work offers the opportunity to earn more, save more and allow retirement assets to potentially grow more. Unfortunately, this fourth leg may be more difficult for people who work in physically demanding jobs, as health issues and demands on an older body can impede continuing their trade.
In fact, one research group estimates that 54 percent of lower-educated Americans are more likely to face an income gap even if they retire when planned, compared to 36 percent of the highest-educated group.7
1 Social Security Administration. June 2016. “Summary: Actuarial Status of the Social Security Trust Funds, June 2016.” https://www.ssa.gov/policy/trust-funds-summary.html. Accessed Feb. 1, 2017.
2 Teresa Ghilarducci. The Huffington Post. Jan. 1, 2017. “Who Is Finished Paying Their 2017 Social Security Taxes? Probably Not You.” http://www.huffingtonpost.com/teresa-ghilarducci/who-is-finished-paying-th_b_13924394.html. Accessed Feb. 1, 2017.
3 Mary Clare Jalonick. Associated Press. Dec. 13, 2016. “Republican looks to overhaul Social Security.” http://bigstory.ap.org/article/574c3ca4001947978743e4a0ad728665. Accessed Feb. 1, 2017.
4 Rebecca Moore. Plan Sponsor. Dec. 29, 2016. “What Happens When DB Funding Relief Goes Away?” http://www.plansponsor.com/What-Happens-When-DB-Funding-Relief-Goes-Away/?fullstory=true. Accessed Feb. 1, 2017.
5 The Geneva Association. October 2016. “The Pension Gap Epidemic.” https://www.genevaassociation.org/media/954342/the-pension-gap-epidemic.pdf. Accessed Feb. 1, 2017.
6 Catherine Collinson. Business Insider. Aug. 17, 2016. “Storm clouds are gathering for a blowout that will affect millions of Americans’ retirements.” http://www.businessinsider.com/retirement-security-is-a-pressing-issue-2016-8. Accessed Feb. 1, 2017.
7 Kim Blanton. Center for Retirement Research at Boston College. Dec. 13, 2016. “Retirement Isn’t Always Fair.” http://squaredawayblog.bc.edu/squared-away/retirement-isnt-always-fair/. Accessed Feb. 1, 2017.
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