If I ask you to say the first thing that comes to your mind when I say “social security,” you will probably say “retirement.” Wrong answer. But, it is the first thing that comes to most of our minds. You see, many of us expect to be able to live on social security when our working days are over. Not necessarily. The fact is, Social Security was never meant to be relied upon as a primary source of income during retirement. It was created as a “safety net” for retirees and the disabled.
The truth is, when you retire, and we all will at some point, it will be very difficult to live on social security alone. But unless you can find ways to boost retirement income, you might just have to. According to the National Public Pension Coalition, at one time 88 percent of the private sector working population had a pension. As of 2016, that number was down to 33 percent.
Today, Bureau of Labor Statistics figures indicate that of 135 million full and part-time workers, only 54 percent of them participate in a workplace retirement plan, and only 23 percent of them participate in a workplace pension plan. Because of the dramatic decline in workplace retirement and pension plans, for many, Social Security may be the only income they have upon retirement. And, for many, it probably won’t be enough.
Before Social Security
Prior to the Social Security Act, there were many attempts to address the needs of Americans who were either too old, or too infirm, to work. Who would, these days, probably be forced to live on Social Security alone. Huey Long, Governor of Louisiana, U.S. Senator, and radical populist, proposed what he called the “Share the Wealth” program in 1930. This program mandated that the Federal Government guarantee every family in the nation an annual income of $5000 so that they could have the necessities of life, including “a home, a job, a radio and an automobile.”
And then there was Francis E. Townsend, a doctor from Long Beach, California. In 1933, he found himself unemployed at age 66 with no savings and no way to financially support himself. As a result of this experience, he devised the “Townsend Old Age Revolving Pension Plan,” or “Townsend Plan” for short. It required that the government provide a pension of $200 a month to every citizen age 60 and over. There were only three requirements:
- the person had to be retired
- their past life is free from habitual criminality
- the money had to be spent in the U.S. by the pensioner within 30 days of receipt
There were others: the “Ham and Eggs” movement proposed that the state of California issue a special currency to give every unemployed Californian over fifty $30 every Thursday; the Bigelow Plan in Ohio sought to guarantee every unemployed Ohio resident over sixty $50 a month ($80 if you were living with a spouse). Life after gainful employment was the common denominator for all the programs. Few contested the need for relief for retirees, the elderly, and the disabled, but how to accomplish this objective produced a plethora of suggested resolutions.
The pre-Social Security Act programs had two things in common:
- most were state-level programs
- none of them ever became law
Here Comes the Feds
In the “good ol’ days” family was all the social security we needed. Between the community and the church, the elderly and the disabled had their essential needs met. But as the country grew, and industry exploded, it became more and more difficult for communities to take care of their own. In his “Message of the President to Congress” in June 1934, Franklin Delano Roosevelt said, “The complexities of great communities and of organized industry make less real these simple means of security.” Something had to be done.
That “something” turned out to be the Social Security Act, part of FDR’s New Deal, enacted August 14, 1935. According to Wikipedia, FDR never meant for retirees to live on Social Security alone. The Act was “an attempt to limit what was seen as dangers in modern American life, including old age, poverty, unemployment, and the burdens of women and fatherless children.”
As lofty an ideal as that was, the initial Act had some serious problems. Workers in agricultural labor, domestic service, teachers, nurses and librarians were excluded from coverage. Since these were jobs held primarily by women and minorities, most of them were not eligible for Social Security benefits. While credible arguments can be made about this being – or not being – intentional, the fact remains that nearly two-thirds of all African Americans, and just over half of all women, were employed in jobs that did not meet program requirements.
That being said, the Social Security Act did have a wide range of programs designed to provide socioeconomic support to those at the bottom of the totem pole. In addition to retirement benefits, it included unemployment insurance, old-age assistance, aid to dependent children, and state grants for medical care. The program has been forced to evolve with the nation. It has been tweaked constantly to keep it relevant. Some notable changes over the years include:
- 1939 – survivors’ benefits; increased benefit amount
- 1954 – disability insurance
- 1965 – Medicare
- 1972 – automatic cost of living adjustment (COLA)
- 1974 – Supplemental Security Income (SSI)
- 1996 – no longer eligible for disability if drugs or alcohol a factor
Let’s Run the Numbers
Most economics pundits agree that to retire comfortably you need at least 1.5 million bucks in the bank or 10 to 12 times your current salary. The actual amount will depend on how healthy you are, where you live, how long you live, and how good you want to live. Carolyn O’Hara, AARP, says that we will need 100 percent of our pre-retirement income for at least 10 years after retirement and after that, our monthly retirement income should be at least 80 percent of our monthly pre-retirement income.
Obviously, this cannot be accomplished with Social Security alone. But for many, Social Security will indeed be their only source of retirement income. According to Investopedia, a leading source of financial content on the web, 21 percent of married couples and 43 percent of single individuals over 65 depend on Social Security for 90 percent of their nest egg. And that’s the good news.
The bad news is: due to changing demographics, the number of retiring baby-boomers, and the decrease in money paid into the system, Forbes predicts that by 2034 Social Security recipients will see their benefits cut by 25 percent. Consequently, it is no surprise that according to a new Gallup report, 46 percent of the people on the cusp of retirement say they will not have enough money.
What to Do, What to Do?
Although I may have painted a pretty gloomy picture so far, it’s really not as bad as it may seem. That’s because there are some things we can do to dramatically improve the situation. It’s all about being proactive. According to USA Today, the three best ways to increase the amount of money available at retirement is:
- work longer
- increase retirement plan contributions
- monetize your hobbies
Working longer is the least attractive – yet most productive – of these options. If you retire at 66 instead of 62, your Social Security check will be 25 percent higher. If you wait until you’re 70, it will be 32 percent higher. However, for many, working longer is not an option.
Door number two is not an option for many, either. The Aspen Institute reports that 55 million American workers have no retirement plan contributions to increase. The third option has worlds of potential. Whatever you like to do, with good planning and hard work, you can make some money doing it. It will take time, and it will take money.
The best time to start working enjoying life after retirement is now. If you wait until you retire, you’ll have the time but you probably won’t have the money. If you have already retired, it’s not too late, but you’ve got to step your game up. A few hundred extra bucks a month can mean the difference between surviving and living.
What Not to Do
Don’t believe the hype! The internet is replete with offers to show you how to make millions from home in a week. Those that offer the most money in the least amount of time are to be avoided at all costs. And speaking of costs, hold on to your money. According to the BBB, legitimate employers do not require fees or investments as a condition of employment, while most work-at-home scams do.
Typical work-at-home scams include:
- online surveys
- envelope stuffing
- medical billing
- data entry
There are some legitimate work-at-home opportunities out there, but you must be diligent in your efforts to find them.
Take Matters Into Your Own Hands
In the final analysis, regardless of where you are on the road to retirement (including being already there), you have more control over the quality of your retirement than you may realize. Commit yourself to beefing up that nest egg. That Social Security check is only going to stretch so far.