Everything is about to change in the US retirement system

Last year, Americans experienced a significant decline in their confidence that they would have enough money to live comfortably in retirement – the largest drop since the global financial crisis. Recent research suggests that this confidence has not rebounded for either workers or retirees. However, some signs of optimism are emerging, particularly as wage growth begins to outpace inflation, according to findings from the Employee Benefit Research Institute (EBRI) and Greenwald Research.

The survey of more than 2,500 Americans highlighted several factors that are seen as potential obstacles to a secure retirement. Chief among these concerns are the rising cost of living, which is making it more difficult to save, and the possibility of significant government changes to the Social Security system.

Americans’ concerns about Social Security in retirement

Both retirees and current workers expect to rely on three primary sources of income during their golden years: Social Security, workplace retirement plans, and personal retirement savings or investments. The research found that 88% of workers expect Social Security to be a source of their retirement income, while an even higher percentage of current retirees, 91%, report that they are already relying on these benefits, which may not bode well for their future economic security.

Social Security faces looming challenges as its trust funds are expected to be depleted within the next decade. Without congressional intervention, this depletion could result in benefit cuts of at least 20%. In addition to Social Security, Medicare’s trust fund for Part A hospital insurance is projected to run out even sooner, adding another layer of uncertainty for future retirees.

Changes to tax breaks for employment-based retirement savings or individual retirement accounts (IRAs) are also potential risks that could disrupt retirement planning. Craig Copeland, EBRI’s director of retirement research, emphasized that such changes “can really change the dynamics of what happens in retirement and how people plan for retirement.

Social Security consistently ranks as a top concern in polls conducted by AARP, noted Nancy LeaMond, the group’s executive vice president and chief advocacy and engagement officer. During a press briefing, LeaMond emphasized the importance of Social Security in the current political landscape. “Given that and the importance of Social Security, we are asking every candidate for federal office this cycle where they stand on Social Security,” she said.

AARP recently released survey results that reveal a rather bleak outlook for Americans age 50 and older. Of those surveyed, 20% said they had no retirement savings and 61% expressed concern that they would not have enough money for retirement. In addition to advocating for a strong stance on Social Security, AARP, which represents individuals age 50 and older, is urging lawmakers to address issues related to family caregiving – a factor that disproportionately affects women’s economic security in retirement, according to LeaMond.

In addition to advocating for the protection and expansion of Social Security, AARP also supports legislative efforts to improve retirement security. One such proposal would make retirement savings accounts, or automatic IRAs, available to Americans who do not have access to employer-sponsored retirement plans. This initiative is part of a broader push to increase savings opportunities for all workers.

While Congress has recently enacted legislation to improve retirement security, the impact of these changes may be limited, particularly for individuals nearing retirement age. Craig Copeland pointed out that while the legislation includes provisions such as allowing older savers to make additional catch-up contributions and introducing a match for low-income workers, these changes may not be enough to significantly alter the retirement landscape for those nearing retirement. “There wasn’t a lot that really changed the dynamic for people nearing retirement,” Copeland said.