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New Study Highlights Need for Social Security
By
Michael A. Piekarz, Senior-Spectrum
June
12, 2007
A new report released by the nonpartisan National Academy of Social
Insurance (NASI) revealed a simple truth – American seniors need Social
Security.
Unlike many analyses of Social Security, which focus on long-term
projections, the NASI study analyzes income adequacy, overall retirement
security and the role Social Security will play as the older population
increases in numbers — the pocketbook realities facing retirees now and
into the future.
“This report lays out in dollars and cents the truth that retirees and
their families know all too well — Social Security is the financial
foundation keeping millions from poverty,” explained Barbara B. Kennelly,
president and CEO of NASI.
“Proposing drastic entitlement cuts, just as our nation enters the
largest demographic shift in our history, is short-sighted. We must
refocus this debate on what needs to be done to ensure Social Security is
not just preserved, but strengthened for future generations.”
Among major conclusions reached by the report was that, while today’s
Social Security benefits are modest, they are also essential in providing
an adequate retirement income for millions of American seniors.
The current average Social Security benefit is only $12,550 annually —
one third of workers’ average earnings — but it is critical to
maintaining financial stability. When Social Security benefits for a
lifetime average earner retiring at age 65 today are compared to their
earnings prior to retirement, the benefits replace only about 40 percent
of past earnings.
The report also forecasts a significant drop in percentages. As the Social
Security retirement age phases up to 67 and Medicare premiums rise at a
rate faster than Social Security benefits, replacement rates for the
average earner retiring at age 65 will fall to 32 percent by the year
2030.
The study also found that retirees rely heavily on Social Security and
that retirement income lost from cuts in Social Security benefits would
not be easily replaced with other sources of income.
“It seems like we keep saying the same thing each year, but the
remarkable thing is that the numbers keep getting worse, year after
year,” commented Shannon Benton, executive director of The Senior
Citizens League. “Many of our lower-income seniors are going to have to
choose between heating their home, prescription drugs or a sufficient
supply of groceries.”
Even when other sources of income are added to Social Security benefits,
retirees are left short. While the ideal income replacement goal of many
retirees is 70 to 80 percent, many retired couples achieve a rate of less
than 60 percent even when they rely on pensions or other assets.
Compounding the financial picture is concern regarding increasing reliance
on 401(k) type plans as they replace traditional pensions because more
risk is shifted from the employer to the worker. Many workers also don’t
take full advantage of the available plans or make the best choices.
Despite major concerns with Social Security’s financial aspects, the
system itself is surprisingly effective. “While private pensions wane
and 401 (k)’s are still largely being utilized by higher-wage earners,
Social Security continues to meet the description of what a successful
retirement program should provide,” explained Virginia Reno, vice
president of income security for NASI.
According to the experts, Social Security encompasses the features that
make an effective and efficient retirement system. It is portable and
covers the vast majority of workers without complex burdens on employers.
It also offers protections to spouses and children, pays a monthly
lifetime annuity, has inflation-indexed payments and offers disability
insurance.
Policymakers discussing the recent NASI findings concluded that we should
focus on solutions to meet Social Security’s long range shortfalls that
don’t involve large benefit cuts or private accounts.
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