The decisions we make today, whether it’s the careers we pick or where we choose to live, can make the difference between thriving or barely surviving in retirement. If you plan on solely relying on Social Security, that could be the case.
Some 58 million Americans were eligible for Social Security in 2022 - a number that is expected to rise to 75 million by 2035. However, reserves are expected to dry up by 2033, potentially leaving many without much-needed basic benefits to rely on.
To examine the future of social security and its impacts, Yahoo Finance’s Rachelle Akuffo sits down with some of the leading experts in the field of financial security and retirement planning: Bob Powell, Editor of the The Street’s Retirement Daily, Teresa Ghilarducci, Labor Economist and Retirement Security Expert, and Surya Kolluri, Head of TIAA Institute.
The panel provides answers to the important topics necessary to plan for your golden years, like social security, along with caregiving, and preparing younger generations for retirement. They also share their insights on how we as Americans need to reimagine our financial future and the steps needed to be better prepared for what lies ahead.
For the latest information on how to set yourself up for financial success, tune into Yahoo Finance Monday through Friday at 9 a.m. ET.
Video Transcript
RACHELLE AKUFFO: How do we reimagine and future proof our retirement without relying on Social Security?
SURYA KOLLURI: Let's underscore why Social Security is as important as it is.
BOB POWELL: Somehow, we need to reverse the bragging rights. The bragging rights today is I own a nice car versus I have a large 401(k) account.
TERESA GHILARDUCCI: Never, ever, ever will Social Security be eliminated. Politically and economically, the case is very, very strong.
RACHELLE AKUFFO: The clock is ticking. If you plan on relying on Social Security to pay your bills in retirement, think again. In 2022, 58 million people were eligible for Social Security. That number expected to jump to 75 million by 2035, with the reserves expected to run out by 2033.
So how do we reimagine and future proof our retirement without relying on Social Security? So Bob, I want to start with you. Because for almost 90 years, Americans have been able to rely on Social Security as, at least, part of their retirement. But once the reserves do run out, will future generations be able to rely on Social Security? Will it have the same impact?
BOB POWELL: Well, it's a hard question to answer because we don't know yet whether Congress will act to rescue Social Security. If it doesn't act by 2033, they-- Social Security will only be able to pay out 8% of scheduled benefits. Right now, if we look at Social Security, it represents 85% of retirement income for those in the lowest income quintile, and about 15% for those in the highest income quintile, and maybe, on average, about 40%.
If there is any rescue to come, it may not affect those who are the oldest or the poorest. It's more likely as what happened with the Greenspan Commission to affect those who are 40 and younger in terms of, either increased taxes, or lower benefits, or a combination, thereof.
RACHELLE AKUFFO: So as we try and imagine what a future looks like without Social Security, do you think there ever will be, Teresa, a time when Social Security will be eliminated? And where do you see this headed?
TERESA GHILARDUCCI: Never, ever, ever will Social Security be eliminated. The politics for Social Security are just way too strong. Democrats want the benefits not to be cut. Republicans want the benefits not to be cut.
So the political reality is that Social Security will be there. And the economic case for Social Security has never been stronger. Social Security is supposed to complement a voluntary savings or a pension system. And on top of that, home ownership.
And so it was always supposed to be around 40% of middle class retiree's income. For lower income people, they rely almost all on Social Security. And for the top, it might be relevant. That's like pin money.
But for the middle class, it was only supposed to supplement. But in the past 20 years, that private sector-- no offense-- system has not filled in what Social Security has provided. So over the past 20 years, Social Security has gotten more important for retirees. So politically and economically, the case is very, very strong for Social Security.
RACHELLE AKUFFO: Surya, I want to bring you in here because when you factor in then also inflation and job security into the retirement savings picture, how does this complicate things?
SURYA KOLLURI: Yeah, this is a very-- I really appreciated Bob and Teresa's points here. But let's underscore why Social Security is as important as it is. There's market risk, of course. And as you mentioned, inflation risk.
But let me add two others. There's longevity risk people are taking on. And inside that, what I might call cognitive risk. So I serve on the New England chapter of the Alzheimer's Association. And I've learned there that when you get to age 85, the chances of getting dementia or Alzheimer's disease is 1 in 3.
So we're living longer. So we need income that's going to support us to address all these risks. And when we look at data at the institute on what kind of income are people getting from Social Security, Black African-Americans, Hispanic Latinos are ever reliant on this. But guess what? Their income is lower compared to other demographic groups. So this is a very vital question you're bringing up.
RACHELLE AKUFFO: And so then when you think about who's going to be most impacted, you mentioned, obviously, minorities and those lower income are going to be most affected. But Surya, when you look at millennials and xennials, who are also going to be the most impacted there, what should they be doing now then to bolster their savings on the chance that they won't be able to rely on Social Security?
SURYA KOLLURI: Yeah, so let me give you based on my experience with young adults coming in as summer interns into our company or joining as new analysts. Of course, if you talk to them about save more money or get your employer match and all these money terms, it could be a turnoff.
It could be like eat your spinach message. Whereas, I've tried to frame it in terms of, hey, you might be expected to have 100 year lives. And compared to your grandparents' generation, you've been accorded a longevity bonus of 17 years, 20 years, 25 years.
How are you going to spend it? That gets their attention. Now finances become a means to facilitate the 100 year life.
TERESA GHILARDUCCI: That's a really good point. What you have to do is imagine their future self, have them empathize with their future self, have them imagine trips they will take with their future selves, and then they have a motive to save because the motive is really to spend.
SURYA KOLLURI: Correct.
TERESA GHILARDUCCI: We all are humans that are motivated to actually consume and have fun.
BOB POWELL: And somehow, we need to reverse the bragging rights. The bragging rights today is I own a nice car versus I have a large 401(k) account.
TERESA GHILARDUCCI: And I think this generation is much more likely to brandish their accounts because this generation is much more financially aware than any other previous generation. They've had to grow up fast because we settled them with student debt.
BOB POWELL: It's also more complicated, I think, Teresa, right, in the sense that we didn't have an HSA when we entered the workforce. We didn't have a Roth 401(k). And now, the need for them to become not only knowledgeable but experts in how best to save for that longevity bonus.
TERESA GHILARDUCCI: Well, we've-- turned-- we've turned financial planning into a do-it-yourself affair, as if we now told a younger generations now you have to do your own dentistry. You know, it's like-- God, the system is not really built to be this complicated for people. And most nations don't do it the way we do it.
