Social Security Turns 70 — The Principal Financial Group Reflects on Contributions of Social Security, Recommends Workers and Retirees Alike Examine Their Financial Futures

Business Wire, August 4, 2005

DES MOINES, Iowa -- Happy 70th Birthday, Social Security! Since President Roosevelt signed the Social Security Act on Aug. 14, 1935, more than 420 million Americans have been issued Social Security numbers. Since then, Social Security has provided a base of retirement security to generations of American workers. In recognition of this significant milestone, the Principal Financial Group(R), the nation's 401(k) leader and total retirement solutions innovator, is recommending that American workers and retirees alike take the time to stop and reflect on their own retirement security pictures.

"Social Security has made enormous contributions over the decades to our society's retirement security. As the national debate on Social Security reform continues, this milestone provides an ideal opportunity to both recognize the great contributions the program has made, and look ahead to the challenges of the future," said Larry Zimpleman, president of Retirement and Investor Services at The Principal(R). "Despite the great historical success of the Social Security program, much has changed in 70 years. Today Social Security faces a significant demographic challenge that will require all of us, whether we're still in the workforce or not, to reassess our financial futures."

Retirees today are living longer, retiring earlier, and have far more expenses and fewer guaranteed income sources available from the government and pension plans. "The statistics paint a daunting portrait forcing today's and future generations to have much greater personal responsibility for their retirement security than ever before," Zimpleman said. For example, in 1940, the life expectancy of the average male was 61 years old; now it's 74. A woman's life expectancy then was 66; today it's 80 years. In just a few years, 78 million Baby Boomers will begin retiring, and the number of workers paying into the system for each retiree will drop from 3.3 today to about 2.1 in 2031.

Another threat to retirement security is the lack of adequate personal savings. Twenty years ago, the national savings rate (as a percentage of income) was 10.8%, but has eroded dramatically to today's level of only 1.2%.

Zimpleman said one positive byproduct of the Social Security reform debate is universal interest and support for savings incentives that will help bolster savings rates, such as automatic enrollment and step-up elective deferral programs in 401(k) plans, increasing deposit limits in retirement savings vehicles, and tax incentives and credits for long-term savings. "The legs on the three-legged stool of personal savings, employer-sponsored plans and government foundation are limping. Despite the outcome of Social Security reform, all Americans will assume increasing personal responsibility for their own retirement security."

The research says...

Some good news, according to the Principal Financial Well-Being Index(SM) (released first quarter 2005), is that Americans are paying attention to the public debate and do appear to "get it" when it comes to Social Security's true place in their retirement security picture. The vast majority of Americans (77%) said they expect Social Security to provide about 50% or less of their income replacement in retirement, which is an accurate estimate. The Principal Financial Well-Being Index also revealed that half of respondents (49%) are either "extremely or very concerned" about the future of Social Security, while another 22% are "concerned" and 24% are "somewhat concerned."

Employees, particularly younger ones, recognize that Social Security will not contribute a significant percentage of their future retirement income. According to the Principal Financial Well-Being Index, 77% of workers said they expect 50% or less of their retirement income to come from Social Security. Significantly more workers age 18-34 (65%) expect 25% or less of their retirement income to come from Social Security.

Many Are Planning to Work Longer or Work In Retirement

"As the debate on Capitol Hill evolves over maintaining the solvency of Social Security, it appears Americans have already acquiesced to working longer or working some in retirement," Zimpleman said. To fully fund retirement with workers expecting less of the pie to come from Social Security, more than a third (36%) say they will work longer before retiring, and (32%) said they plan to phase into retirement by working part-time. A promising result, significantly more young workers (ages 18-34 and 35-44) said they would start saving more money now for retirement compared to those over age 45 -- "a very good thing," says Zimpleman, "that younger workers are hearing the message to start now."

Managing Social Security "Personal" Accounts Won't Come Easy

The vast majority of workers (89%) are aware of legislative proposals to reform Social Security with private retirement accounts. Workers were asked to rate their comfort level with the idea of managing their own Social Security personal retirement account. About half (49%) said they were not comfortable with managing their own personal accounts, a sign, Zimpleman says, that Americans today want "do-it-for-me" investment services and advice.