Social Security, Individual Accounts: Retirement Bread and Butter

By John Iekel • May 19, 2017 • 0 Comments
The number of workers participating in the Social Security system has risen, as has the number of people receiving benefits. But while the importance of Social Security has increased, say recent reports, individual retirement accounts figure very prominently as well.

Social Security

Eighty years after it was instituted, Social Security remains a key part of many people’s plans for financing retirement. The Social Security Administration’s (SSA’s) just-issued “Annual Statistical Supplement to the Social Security Bulletin, 2016," a report prepared in SSA’s Office of Retirement and Disability Policy, Office of Research, Evaluation, and Statistics that provides detailed information about its programs and activities in 2015, gives a look at the program’s importance.

More than three million more workers were added to the pool that is contributing to the Old-Age, Survivors, and Disability Insurance program in 2015. There were 165.6 million workers in the system in 2014, and 168.9 million in 2015. Growth in average earnings was much smaller: just $891 per year, rising from $45,017 in 2014 to $45,908 in 2015.

A higher number of contributors comes in handy, since the number of beneficiaries rose as well; however, the increase in contributors outpaced the growth in beneficiaries by three to one. Average monthly benefits for retirees were virtually unchanged, rising a mere $13 from 214 to 2015. Increases in monthly benefits for widows, widowers and disabled workers were even more minute.

Not only are more people receiving Social Security benefits, more people expect to depend on them. In “10 Years After the Crisis: Middle-Income Boomers Rebounding But Not Recovered,” the Center for a Secure Retirement says that more members of the Baby Boom generation plan to depend on Social Security. The report says that before the Great Recession, less than 30% of middle-income Boomers expected to rely on Social Security as their main financial support in retirement; now, almost 40% do.

What Else?

According to the Center for a Secure Retirement before the crisis, 43% of middle-income Baby Boomers planned to rely on their own retirement accounts, savings, investments and employment. A decade later, less do, but just over one-third still have that expectation.

The center’s report says that middle-income Boomers expect that the largest non-Social Security source of income will be retirement accounts (21% anticipate that will be their biggest source of retirement income).

Importance of Individual Account Retirement Plans and Home Equity in Family Total Wealth,” a recent report by the Employee Benefit Research Institute (EBRI) bears that out, stating that EBRI found that 401(k)-type plans and IRAs (which it calls individual account, or IA, assets) account for almost all the assets families depend on in retirement beyond Social Security and pension plans. “It is overwhelmingly the case that just IA assets plus home equity represent almost all of what families have for retirement outside of Social Security and defined benefit pension plans,” says EBRI.

And that serves those individuals in good stead, EBRI says. “Overall, those with IA assets have significantly more assets, and the IA assets make up a large share of financial assets. Those without IA assets typically have very low overall assets, so they have almost nothing to draw from for retirement expenses,” the report says.