woman holding empty wallet

Even before the pandemic began, almost half of all U.S. families reported lacking any retirement savings beyond Social Security, according to the Economic Policy Institute. In addition, with life expectancy continuing to increase, many retirees may not be prepared to finance these longer lives, said speakers last week during the 2020 Century Summit, a virtual webinar developed as a collaboration between the Stanford Center on Longevity and the Longevity Project.

“Neither our personal savings habits and behaviors nor our social support programs are adequately supporting longer lives,” said Martha Deevy, associate director and senior research scholar at the Stanford Center on Longevity.

One speaker noted that the most important first step in redesigning America’s current retirement system is figuring out what is driving the shortfalls.

“Is it that people aren’t shifting enough resources to retirement, and if so, what nudges do people need to save more?” asked Richard Johnson, director of the program on retirement policy at the Urban Institute. “Or is it more a lack of resources? Because in that case then we have to think about improving people’s social safety network and how to shift money from those with more high income to those with lower incomes.”

Johnson also noted that more people are entering retirement these days with debt than they had in the past, which creates an additional drain on retiree’s spending. Pair that with the havoc the COVID-19 pandemic has wreaked on the Social Security trust fund reserves and the fact that many retirees eventually will need extended long-term services and supports, and Johnson says he’s quite concerned about the future of retirement.

“We know the majority of people over age 65 depend on Social Security for the majority of their income in old age, and while we know the system won’t disappear entirely when the trust fund runs out, we don’t know right now what funding will look like after that,” he said. “A 20% cut to Social Security checks will have a significant impact on many lower income retirees.”

Not all of the panelists were quite as concerned about the current retirement system, however. 

“The reality, when you look at the data, is that we’ve really come a very long way from the golden era of traditional defined pensions, and more Americans are participating in retirement plans than ever before,” said Andrew Biggs, a resident scholar at the American Enterprise Institute. “Further, the retirement savings contribution rate is about two-thirds higher than it was in 1975, and savings have risen in every age and racial group. We run the danger of throwing out the baby with the bathwater when we say the whole system isn’t working.” 

In addition, more and more retirees have been building in a fourth pillar to the traditional three retirement pillars of Social Security: workplace retirement plans and personal savings, noted Sri Reddy, senior vice president, retirement and income solutions, at Principal Financial Group. They are choosing to work in some form after entering “retirement.”

“The definition of work has evolved and changed over the years, and many people are finding ways to monetize their years in traditional retirement,” Reddy said. “It’s a long time for people to just have hobbies.”