The U.S. retirement system as well as the retirees it was designed to help face major challenges, according to a new report from the U.S. Government Accountability Office (GAO). The GAO says that fundamental changes over the past 40 years make it increasingly difficult for individuals to plan for and effectively manage retirement finances.
Social Security was never designed to supply all of one’s retirement income, but to be part of a “three - legged financial stool” that also includes employer pensions, or retirement savings plans like 401(k) s, as well as individual savings, including the equity built up in one’s home. The GAO says that “there has been a marked shift away from employers offering traditional defined benefit pension plans to ‘defined contribution’ plans, such as 401(k)s as the primary type of retirement plan.” The shift has put increased responsibilities on the individual for saving, and for managing their retirement income.
Many individuals are not saving enough to provide adequate income over retirements that can last 20 to 30 years. While U.S. home prices have recovered nearly all their losses from the 2006 crash, when adjusted for inflation home prices are still below the 2006 peak. In addition, rampant growth in health care costs and debt can get in the way of an individual’s ability to save enough for retirement (or stay in the work force longer), the GAO says. Yet outside of Social Security and employer - sponsored retirement accounts, many individuals’ savings are low or even nonexistent, which increases their reliance on Social Security as well as other federal and state safety net programs.
The GAO says the U.S. retirement system is “unable to ensure adequate benefits for a growing number of Americans, due, in part, to the financial risks facing Social Security, Medicare, and Medicaid". Social Security is projected to be unable to pay full benefits by 2035, and economists warn that changes will be needed.
Congress recently considered major changes to the tax code that would potentially eliminate personal exemptions and could even affect what older taxpayers might deduct for medical expenses, subjecting a larger share of retirement income to taxes. That suggests the need for even greater retirement savings in the future. TSCL agrees with the GAO that our nation needs to re-evaluate the approach to financing retirement.
Please help us inform lawmakers in Congress about the adequacy (or inadequacy) of Social Security benefits and tell us what approaches you support to strengthen Social Security and Medicare for the future. Take our 2018 Senior Survey.
Sources: “A Comprehensive Re-evaluation Is Needed To Better Promote Future Retirement Security,” GAO, October 2017. “The 2017 Long-Term Budget Outlook,” Congressional Budget Office, March 2017, page 23. “American House Prices: Realty Check,” The Economist, August 24, 2016.