Looming retirement crisis? It’s already here, at least according to Carolyn Colvin, the Acting Commissioner of Social Security.
Colvin gave an interview with The New York Times in the wake of the release of the annual Social Security report card of the program’s trust fund. The report found that in 2015, Social Security’s reserves increased by $23 billion to $2.8 trillion by the end of the year. However, it also said its reserves will be depleted by 2034, forcing a benefit cut by 21 percent. As the Times noted, the agency currently pays out more than $800 billion a year to about 60 million retired and disabled Americans.
Colvin, according to the paper, takes the projections in stride.
“I think the program is sound. I think the fears are misplaced. Congress has always done what is necessary to ensure (Social Security’s) solvency,” Colvin said during an interview in Atlanta. “I like to believe that something will happen, but by law, we can only spend what we have. So if Congress were not to act and make the changes that would make the program fully solvent, then we could not pay the full benefit.”
However, she was quick to add it’s never happened, and Congress has always acted to ensure that “we are able to pay the full amount that is due.
However, she was more direct when commenting on the current state of retirement saving overall.
“I think as far we’re concerned, we’re in a retirement crisis right now, particularly with the Baby Boomers retiring,” she said. “The savings rate is inadequate, and so many of the jobs do not have a pension at all. With the 401(k)s, many people borrow from those with the expectation that they’re going to pay them back. And they often don’t pay them back, so they end up just with Social Security.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
Her comment about plan loans is somewhat misleading. Many 401k plans permit participants to request a loan. Loans from 401k plans are generally limited to 50% of the vested balance with a maximum loan amount set at $50,000. This $50,000 may also be reduced for participants that have had another plan loan in the last 12 months. No one who has taken a loan from a 401k plan will “… end up just with Social Security.” This is too simplistic and factually incorrect.
I don’t think enough is taught at a high school or college level. I don’t think people are educated enough about 401k or pensions. I know I didn’t have enough education on these. My employer initiated some educational programs maybe about 10 years ago, for me it was not too late but it could have been earlier.