Most Americans don’t feel they can depend on Social Security for retirement income and worry about their long-term financial stability, according to a new study from Allianz Life Insurance Company of North America.
Nearly three in four (74%) say they can’t count on Social Security benefits when planning retirement income. As a result, 88% believe they will need another source of guaranteed income beyond Social Security benefits in order to have a comfortable retirement.
Read: Social Security benefit cuts could begin in 2034—are you planning for that?
“Politicians are saying we need to cut benefits, we need to change Social Security. It scares the heck out of people. All this news saying the trust funds will go dry … all that generates a lot of fear. All we’re hearing is that it’s past its prime rather than solutions, but it’s too important of a program to disappear,” said Kelly LaVigne, vice president of consumer insights at Allianz Life, a global financial services company that sells annuities among other types of financial products.
“The reality is that no politician will keep their job if they vote to cut benefits. There’s no way you can forget that. So, in some form of a painful way there will be a solution. They may tax more and make it some kind of way to make it look like they didn’t,” he said.
Social Security’s combined trust funds will become depleted in 2034, one year earlier than expected, with 80% of benefits payable at that time, the Social Security and Medicare Board of Trustees said late last month.
Read: Social Security is now projected to be unable to pay full benefits a year earlier than expected
The issue of Social Security has grabbed headlines in recent months following President Joe Biden’s State of the Union address, in which he vowed to protect Social Security and Medicare.
Enacting changes to the federal retirement program often is referred to as the “third rail of politics” because the issue is so politically controversial that it’s untouchable. The White House is against cutting benefits and sees an increase in the retirement age as such a move.
The last major changes to bolster Social Security’s finances were made in 1983. Part of those changes included a gradual increase of the full retirement age to 67 from 65.
LaVigne said he doesn’t see Social Security changing for anyone already receiving benefits or close to receiving benefits. But, “if you’re 20-25 years from retirement, your Social Security may look a little different,” he said.
“Baby boomers are really the first generation funding their own retirement—401(k)s are really your own savings. It’s the first generation going through this. What’s the retirement of the future?” LaVigne said.
“There’s got to be a solution that’s palatable enough to keep the system liquid. It’s too important to play politics with. It’s the most critical part of retirement,” LaVigne said.
In other aspects of the Allianz study, fewer Americans are worried about a major recession right around the corner (57%) than last year (60%). Still, 41% say they are concerned they will be laid off because of an economic downturn in 2023.
In addition, most Americans are still very cautious about investing. More than half (63%) are keeping more money out of the market than they think they should and 62% would rather have their money sit in cash than endure market swings.
More Americans are also expressing concern about their long-term financial health. For example, 78% worry that they might not be able to afford the lifestyle they want in retirement due to the increased cost of living. This is up from 73% last quarter and 68% in the first quarter of 2022. Meanwhile, 66% worry that if they don’t increase their retirement savings soon, it will be too late to have a comfortable retirement.
Meanwhile, Generation X, or people born between 1964 and 1978, are worried about their retirement and long-term financial stability. According to the study, 43% of Gen Xers worry their employer will suspend their 401(k) match, compared with 38% of millennials (born between 1979 and 1996) and 24% of boomers (born between 1945 and 1963).
A total of 67% of Gen Xers say they are keeping more money out of the market than they should, compared with 66% of millennials and 54% of boomers, according to the study.
LaVigne said such moves are risky because keeping too much of your assets in cash can be bad since historically it’s difficult to properly time a re-entry into the stock market and people tend to miss the biggest and most critical rally days.
“It’s almost assured you’ll miss the rally,” LaVigne said.
A vast majority — 85% — of Gen Xers worry that they might not be able to afford the lifestyle they want in retirement because of the increased cost of living, compared with 80% of millennials and 72% of boomers.
“Gen Xers are entering into and in critical years of retirement preparation,” LaVigne said. “Many people are often in their highest earning years in their 40s and 50s and finally able to really save a significant amount of money for retirement. This is when they need to establish strategies and really focus on how they are setting themselves up for the retirement lifestyle they want.”