For older workers starting to think about retiring, the economic maelstrom the coronavirus set in motion is a reminder of that
sinking feeling they experienced just over a decade ago. In 2008, the stock market plunged nearly 40 percent, accelerating the steep
decline that was underway in U.S. house prices. The unfolding 2020 recession is playing out differently. But both downturns have one
thing in common: Social Security as a stabilizing influence on older workers’ retirement finances.
A 2011 study of the change in baby boomers’ finances during the Great Recession found that total wealth dipped by 2.8 percent,
on average, between 2006 and 2010 for households between ages 51 and 56. The 2.8 percent decline in wealth at the time was a
significant setback for baby boomers. In more normal times, earlier generations had increased their wealth by 3 percent to 8 percent
at comparable ages.
Nevertheless, things could have been so much worse for baby boomers were it not for the substantial wealth they had built up over
several decades in their future Social Security benefits—an amount that is unaffected by the collapse of financial and housing
markets. The average value of these future Social Security benefits was 30 percent of boomers’ wealth.
This time around, it’s too early to determine the severity of the downturn’s effects on older workers. Unlike the
previous recession, though, this one has had little impact on house prices so far, and the stock market, after sinking in March, has
regained about half of its losses thanks to aggressive action by the Federal Reserve. The major worry is unemployment.
But, in any recession, Social Security is a stabilizing force. Today, it represents a large share of older workers’ wealth
just as it did a decade ago. And lower- and middle-income workers’ benefits are a much larger share of wealth, because they are
far less likely to have substantial assets in 401(k)s. Social Security’s progressive benefit formula also helps them more in
retirement by replacing a higher percentage of their current earnings, though the redistribution among individuals is larger than it
is for households.
Social Security, the researchers concluded, “played a major role in cushioning the effects of the recession.” What was
true then is still true today.
You can find the full article, and a link to the study mentioned, at Squrared Away Blog.