Social Security Is Not Enough

The pillars that hold up the retirement system are personal savings, pensions, and social security. As we discussed here recently, low, middle, and high-income earners have different challenges when it comes to saving for retirement. Since our definition of high-income earners are those who can easily save enough to live a comfortable life regardless of their Social Security benefits, we won’t worry about them too much. Today we look at lower-income workers.

The less income you make, the more of it you need for the basics: food, clothing, and shelter. But there are other things like healthcare, education, transportation, and communication that are pretty important, too. Those who are using their income to just survive and maintain a minimum standard of life don’t have much of anything left over for retirement savings. Social Security benefits will be the major income source for them in retirement.

Pensions can also help a lot here, but as I mentioned before, they just aren’t too prevalent in the private sector. However, federal, state, and local governments still do have pension systems. If a lower-income worker can stack social security benefits with a government pension, they’re more likely to have a comfortable retirement.

But that still leaves a lot of folks who work hard, don’t have the excess income to save, and end up relying almost exclusively on Social Security for their retirement. The problem is, Social Security was never meant to be the sole source of a comfortable retirement income. It's there for just enough food and clothing (basic necessities) while Medicaid/Medicare takes care of healthcare needs. Remember, I started this to look at how we might bolster our retirement system in the United States. So, let’s look at how we can help this group.

First, as Social Security plays a pivotal role it would be nice if we could at least strengthen it so that it can pay what has been promised already. The proposals to fix it are usually to either raise taxes or cut benefits. Well, let’s just say that cutting benefits to a program that is pivotal to lower-income worker retirement is not going to help them. So, you are left with two choices: Cut benefits or raise taxes for the middle and/or higher-income workers.  This, to put it mildly, is not a popular idea.

Well then, what about pensions? I guess we could create a lot of excess government jobs and force lower-income workers to take them…but I’m guessing there’d be a lot of push-back on that. Maybe we could force private employers to have pension plans. Again, I’m guessing there’d be a lot of push-back there too. Well, maybe the government could set up a pension system for lower-income workers—oh, never mind—let’s let them sort out Social Security first. Well, darn, this IS a problem, isn’t it?

What about the third leg: personal savings? Since by definition our lower-income workers don’t have enough money for this we are left with two choices: Lower their expenses or increase their income. With this, we have notions about helping with healthcare, childcare, education costs. We also have the idea of a minimum wage or even a guaranteed minimum income.

We’ll tackle these controversies next time.

Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing.