We may be the envy of the world in some ways, but the US also has no shortage of stress. Today, we’ll look at some data on growing financial anxiety that is plaguing an increasingly large part of the nation.
Social Security
Last week, I ran across a survey from NerdWallet on this very issue. They asked 2,000 Americans of all ages about their biggest financial concerns. It turns out the biggest worries are healthcare expenses, lack of emergency savings, and lack of retirement savings.
Yet only 28% worry they lack retirement savings? Compare this with what we know about people’s actual savings, and that number is far too low.
33% of Americans have no retirement savings at all; another 23% have less than $10,000; and a further 10% have less than $50,000. So that’s 66%, a full two-thirds of Americans, with either no savings at all or not enough to generate significant income.
(If you have $50,000 and can pull out 4% a year without drawing down principal—which is hard to do—you’ll get something like $160 a month.)
This shortfall is a problem, and not just for them.
You Think Social Security and Medicare Will Cover Them?
It’s easy for those of us in the Protected Class to think the masses will be fine. They at least get Social Security and Medicare—enough to keep them out of poverty, right?
No, not right.
You may remember us mentioning this before, but the Social Security Administration publishes a very handy annual “Fact Sheet” that paints a different picture.
In 2017, the average monthly retiree benefit is $1,360, which translates to being a full-time worker who earns $7.85 an hour (and remember, this is the average; many people receive less).
Social Security’s fact sheet also says benefits represent about 34% of the elderly population’s income—but that number is heavily skewed in favor of the wealthy. Among retirees, 21% of married couples and 43% of unmarried persons rely on Social Security for 90% or more of their income.
Currently, 41.2 million retired workers and 3 million dependents receive Social Security benefits. So that means 15 million or more retirees must be living on an income that’s meager by any definition.
But at least they don’t have to worry about medical bills, you say; Medicare covers them all. Well, yes, it does cover them, but that’s not the same as covering their expenses. Copays and deductibles add up quickly unless you have supplemental insurance, which itself is expensive.
Medicare recipients are responsible for 20% of hospital bills, and for these people, even a short stay can wipe out months of income.
The Social Security fact sheet has another chilling number. It says 51% of the private workforce has no private pension coverage. Those are presumably people who work in small businesses or are self-employed or “gig” workers.
So Is Social Security Sustainable?
To listen to politicians, Social Security obligations will always be met. But as I’ve been writing about for years, the numbers tell the reality may be different.
By 2035, the number of Americans 65 and older will climb from about 48 million today to over 79 million. That’s the Baby Boomer impact.
Currently, there are 2.8 active workers for each Social Security beneficiary. It will be only 2.2 workers per beneficiary by 2035. And just to throw a little more fuel onto your worry fire, that figure of 2.2 workers per beneficiary assumes that labor force participation rates between now and 2035 will be stable or improved from where we are today.
But the chart from Larry Summers last week showed that there are now 10 million men in America between 24 and 54 who are not in the labor force.
That number could rise to as high as 20% of the labor force by 2035. Take out another 10% of the labor force, and now there are fewer than two workers per Social Security beneficiary.
That means each and every worker, from the lowest paid to the highest, must pick up the tab for roughly $7,000 per year of Social Security expenses through their contributions and taxes—before they start to pay for any other government services like healthcare or defense (not to mention interest on the national debt).
John Lennon’s song lyric comes to mind: “You say you want a revolution?”
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