The latest data on the future viability of federal social insurance programs are mixed. While the outlook for Medicare improved slightly in the recently-released Social Security Administration Trustees’ annual report, Social Security’s anticipated insolvency date remained unchanged at 2033.

As Social Security and Medicare remain a significant part of retirement planning for most workers, it is important for clients to understand the challenges facing these programs and incorporate this information in their retirement planning.

The report found that Social Security would not be able to provide total benefits as of 2033, but rather pay out only about 75% of total benefits due to recipients after that date. In addition, the Trustees noted that some beneficiaries, including those who receive benefits from the disability fund portion of Social Security, would soon experience a reduction in benefits as the fund would be depleted as early as 2016.

In a positive aspect of the board’s analysis, the estimated insolvency date for Medicare was projected at 2026, representing a two-year extension over last year’s outlook. The improved estimate for Medicare was due to an estimated reduction in health-care costs, the report noted.

Social Security remains a part of retirement planning for most Americans across all income levels. Putnam, in conjunction with BrightWork Partners, conducted a Lifetime Income Score℠ Survey that found American workers are projected to replace an average of 61% of their income in retirement, including Social Security. Without Social Security, that number fell to 22%.

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Source: Putnam Lifetime Income Score℠ Survey, 2013.
The Putnam Lifetime Income Survey, with research methodology provided by the Putnam Institute, was conducted online by Brightwork Partners and completed in January 2013. The survey of 4,089 working adults age 18 to 65 was weighted to U.S. Census parameters for all working adults.

The survey also found that households expect Social Security to represent 33% of income in retirement. But 68% were “not very confident” or “not confident at all” about being able to count on receiving their full Social Security benefits in retirement.

Given the uncertainty surrounding future benefits from these programs, it’s important to emphasize with clients that they need to use all available investment options, such as workplace retirement savings plans and Individual Retirement Accounts, to build enough savings to generate sufficient income in retirement. The rising cost of health-care is another aspect that should be an integral part of retirement planning.