Are you changing employers? Nearing full retirement age? Social Security and retirement savings hold great significance both in employment and retirement. The Harkin Institute and the U.S. Department of Labor discuss, analyze, and propose reparations for Social Security and retirement savings programs in this event.
The first panel of the Harkin Institute’s live event covered the Social Security system. Why is Social Security so important?
Social Security is the foundation for retirement in America. It’s a vital source of income to millions of retirees, making it the most relied-upon source for people planning for retirement, near retirement, and in retirement. In fact, 77% of people would pay higher taxes to maintain the Social Security program, according to the panel.
“What I often tell younger workers is that not only will [Social Security] be there for you when you retire, it’s there for you right now as a source of insurance,” said Kilolo Kijakazi, acting commissioner, U.S. Social Security Administration [Panel One: Social Security and Disability].
As of 2022, there are 46,329,595 Americans that receive Social Security benefits for retired workers. The second most common type of Social Security benefit is Disability Insurance, with 8,151,016 Americans receiving it. Spousal, survivor, and divorced spousal benefits follow with 6,366,621 Americans receiving these, according to the panel’s Social Security fact sheet: “AARP Public Policy Institute “Social Security Quick Facts” Fact Sheets for United States and Iowa, 2022.”
Out of all U.S. adults 65 years or older who are reliant on Social Security for income, 19.6% receive more than 90% of their income from Social Security, 41.2% receive at least 50% of their income from Social Security, and 39.2% receive less than 50% of their income from Social Security [SS fact sheet].
Similarly, the Social Security system has lifted 16.1 million individuals in the U.S. aged 65 and older out of poverty, reducing those under the poverty line from 37.8% to 9% [SS fact sheet].
“Social Security helps to compensate for these labor market barriers through the benefit formula. The benefits provided by Social Security are a larger share of pre-retirement earnings for lower-wage workers than higher-wage workers,” said Kijakazi [Panel One: Social Security and Disability].
Other reasons why Social Security is so heavily depended upon include that “Social Security retirement benefits last for the remainder of a person’s life, providing longevity protection to people that have long lives,” said Kijakazi. “In addition, benefits are inflation-protected and are adjusted each year through the cost-of-living adjustment [or COLA]. This ensures that benefits maintain their purchasing power over time” [Panel One: Social Security and Disability].
A fairly recent example of Social Security serving as a financial cushion [for those aged 65 or over and claim it] was seen as a result of the pandemic.
“At the beginning of the pandemic, we had enormous unemployment. For a couple [of] years, there wasn’t enough money coming into the payroll system – payroll tax – to fully pay everybody all [of] their benefits. But everybody got paid,” said Max Richtman, president, National Committee to Preserve Social Security and Medicare. “Social Security paid everybody in full, on time. Why? The trust fund was there to fill in that gap. Not only did everybody get paid in full, even though not enough money was coming in out of payroll taxes, the size of the trust fund actually grew because of the interest paid on these government bonds” [Panel One: Social Security and Disability].
In a nutshell, “you want something that is safe and secure that you can rely on and know it’s going to be there, and that’s what Social Security is,” said the host of the live event, Senator Tom Harkin [Panel One: Social Security and Disability].
These statistics may or may not come as a surprise, considering the importance of retirement savings and how they often go hand-in-hand with Social Security. The panel confirmed that retirement savings is one of the top overall financial concerns in the country, even over debt.
However, there is a large issue surrounding retirement savings in that the ability to transfer it when switching employers is far too complicated or simply not possible and therefore, money is lost: “$92 billion is lost every year because people can’t take their retirement [savings] from job to job. Which means that when you get to the age of 60, the average American has lost 30% of their retirement [savings],” said Kathleen Kennedy Townsend, Department of Labor representative on Retirement and Pension Issues [Panel Two: Employer Retirement Savings Programs: Coverage, Accumulation, Adequacy, and Lifetime Income].
Some of the reasons why people can’t take their retirement from job to job include the following:
- There’s no requirement for your new employer to take your retirement savings
- Different retirement sources are taxed in different ways
- The process is too long and complicated
- Most people have 3-4 different retirement sources
A proposed suggestion for addressing this problem by Michael Kreps, principal, co-chair Retirement Services Practice, Groom Law Group, is that each employer sponsors their own plan, which would make the process less overwhelming and potentially bring costs down.
“Without Congress doing anything, I think the private sectors have started to address this in incremental steps,” said Kreps. “Recently, three of the largest service providers in the country announced what they're calling the Portability Services Network, something that’s been in development for almost a decade, that allow these three service providers, who run almost a majority of plans, to automatically move your money when you change jobs. So, when you go from Employer A to Employer B, your money can follow you seamlessly and without any friction through a negative consent process” [Panel Two: Employer Retirement Savings Programs: Coverage, Accumulation, Adequacy, and Lifetime Income].
Considering the significant roles that Social Security and retirement savings play in the finances of the majority of Americans, it’s crucial that issues such as these are not only discussed but acted upon and repaired.
For more information and analysis in the Roadmaps to Retirement: Taking Stock and Looking Forward event, check out The Harkin Institute’s website here.