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An Oldie But Goodie: The Importance of Social Security as Source of Retirement Income

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Abstract:

As the post-war Baby Boom generation enters retirement amid concerns about the long-term financing of Social Security, it is critical for Congress, policymakers, and the general public to recognize the central role of Social Security as a source of retirement income. Social Security remains the only universal source of retirement income for the vast majority of Americans. And, for most of us, it is the most relevant source of retirement income after a lifetime of hard work.

Yet Social Security was never meant to be the sole or even primary source of retirement income. To address apparent shortfalls in retirement income, Congress has tried to address retirement income security with changes in the tax code to encourage the growth of private pensions such as traditional defined-benefit pension plans, 401(k) type defined-contribution savings plans, and Individual Retirement Accounts, among a slew of other savings vehicles. For 2007, the government expects to lose tax revenue to the tune of $109 billion to support retirement savings in these plans.