Opinion: You can’t rely on Social Security to fund your retirement — it’s time to rethink your retirement savings strategy

Americans are running out of longstanding “safety nets” — without infrastructure like pensions or Social Security, the impetus falls onto the individual to take on more responsibility, now more than ever, for their own retirement security. Yet 2020 data from the Employee Benefit Research Institute found an average retirement savings deficit of $3.68 trillion within U.S. households ages 35-64, meaning countless people are facing an underfunded retirement.

Read: Plan for the worst-case scenario of lower expected Social Security payments by finding income elsewhere

In today’s economic environment, it’s difficult to convince the average person to commit part of their paycheck toward a retirement fund when facing pressing near-term financial challenges. Financial well-being took a hit in 2022, with people facing increased costs of living despite trailing wage growth — Allianz Life research found that 54% of Americans had to stop or reduce retirement contributions as a result.

In addition to financial barriers, employees need better education on what they realistically have to save to live at the same standard they currently do while in retirement. For example, you might think contributing the typical 7% of your salary is enough — yet more recent guidance says at least 10% to 15% is needed for a financially sound retirement. 

Moreover, despite the fact that a 401(k) is considered a baseline benefit, 32% of private sector workers don’t have access to one, according to 2021 data from the U.S. Bureau of Labor Statistics. This creates an even bigger educational barrier for individuals who have to independently navigate saving for their future.

Read: How to get a guaranteed retirement spending rate of 4.3%

Cannot take funds for granted

Against this backdrop and the very real possibility Social Security will not last forever, two things become clear: the retirement industry needs better regulation in place to help set employers and people up for success, and employers have an increasingly essential role to play by providing education and access to retirement savings mechanisms.

Critical legislation making its way through Washington right now — including the SECURE Act 2.0 and the EARN Act—aims to address some of the blockers standing in the way of saving for retirement, for both businesses and employees. One of the most promising elements is a provision that would require employers to automatically enroll employees into their company retirement plan, rather than making them sign up manually — which can be a complex and easy-to-ignore process during onboarding, particularly for younger employees.

Additionally, many states are adopting mandates which require businesses to offer retirement solutions when they employ a certain number of individuals. These programs are heavily subsidized by the state and also suggest more tax incentives for employers to afford the cost of retirement plans.

Another major barrier that often stands in the way of saving for retirement is student loan debt. Americans are currently facing nearly $1.75 trillion in student loan debt, according to the Federal Reserve Bank of St. Louis. As the end of the moratorium on repayments nears, many people are likely considering how to balance those payments against retirement contributions and other financial obligations.

New retirement legislation would put an innovative process in place to support both goals, by allowing employers to “match” contributions to employees’ student debt — for example, for every $100 an employee contributes to their 401(k), the employer will put $100 toward their student debt.

Actions employers and employees can take now

Regardless of how things play out in Washington, there are actions employers can take now to help employees start saving more. Employers should commit to working hand-in-hand with employees to support their retirement savings goals — this starts by offering a 401(k), but it certainly shouldn’t end there.

There’s a variety of tech solutions that encourage better retirement savings behaviors — including built-in mechanisms like auto-enrollment and auto-escalation, tools that help employees visualize what their 401(k) “paycheck” will look like in retirement, or how they compare to peers of a similar age and income level to make sure they’re on track with contributions.

Companies should also work closely with employees to proactively coach them on best practices for retirement saving. This can include personalized outreach to young employees to help them get started with their 401(k) and understand the value of saving for retirement, regular reminders to encourage employees to increase contributions, and education around difficult financial situations — such as encouraging employees not to panic and withdraw 401(k) funds during times of market volatility, which can lock in losses and incur major fees.

Another key factor is removing intimidation around saving for retirement. While a 10% to 15% contribution rate is ideal, it’s not realistic for everyone — stowing away even a tiny portion of your paycheck, especially if you begin saving at a younger age, can still grow into a healthy fund as you grow older thanks to compounding interest.

Not everyone has access to a 401(k). But even those that do should also look into other tax-advantaged vehicles to save as much for retirement as possible. Employers can encourage employees to explore flexible spending accounts (FSA), health savings accounts (HSA), IRAs, and Roth IRAs—taking advantage of these, and maxing out contributions where you can, will put you at a great advantage as you approach retirement and help you get on track if you don’t have access to an employer-sponsored account.

We cannot rely on Social Security to fund our retirement. Even if Congress moves to bolster the program, the retirement security gap remains significant, and many will need other funds to create the type of retirement they want. People should take this moment to re-examine their retirement savings strategy — meanwhile, the retirement industry and employers need to recommit to making it easier to get started and stay on track.

Kristen Carlisle is general manager of Betterment at Work.