News & insights

April 15, 2009

Sun Life's Unretirement Index: North American workers and social security

In both the U.S. and Canada, younger workers seem to be losing confidence in the availability of traditional government retirement programs.

Recently, Sun Life released the results of two surveys conducted to gauge retirement attitudes in the U.S. and in Canada. Sun Life’s Unretirement Index results provide a unique snapshot of how North Americans are feeling about a number of issues that influence their retirement. Considered together, the results address how secure workers feel about their futures in general.

Overall, Canadians expressed a slightly more optimistic view than Americans. The index results are 50 versus 44, respectively, on a scale of 1 to 100, where 100 is the expectation of a perfect retirement at the perfect time.

One trend observed in both Canada and the U.S. is the sense among workers in their 30s that current government programs may not be there when it comes time for their retirement. This isn’t a new concern. The surge of baby boomers as they approached various life stages -- now retirement -- has caused alarm in the generations behind them for years, as number crunchers project what the strain of such a large bubble of people will do to government programs and other resources, such as health care.

How much faith North Americans have in their governments to provide during retirement depends on age more than location. The closer to retirement age, the more confidence Americans and Canadians express in existing social systems.

Canadians have had a government-sponsored pension plan, similar to Social Security offered in the United States, since 1966. In Canada, 82% of those surveyed expect to receive income from the Canadian Pension Plan (CPP) or Quebec Pension Plan (QPP) upon retirement. This level of confidence declines the younger the group sampled. For example, 82% of 60-65 year olds are very or somewhat confident that they will receive this income at levels comparable to today, but this number drops to 62% among those 30-39 years of age. And 77% of Canadians who expect to work past the age of 65 say they don’t believe a government pension would be enough to live on.

In the U.S., Americans’ confidence that Social Security and Medicare will remain solvent continues to fall, especially among workers in their 30s and 40s. A full 70% of workers in their 30s and 66% in their 40s who plan on working past the age of 65 do not believe Social Security will be available when they are 67. In fact, the U.S. survey found that, given the choice, 48% of American workers would opt out of the Social Security system. Even 33% of American workers over the age of 60 said they would rather opt out.

When Social Security was introduced in 1935, remaining life expectancy at age 65 was 12.5 years. Today, it is 18 years, and by 2030, it is projected to be 19.3 years.1 Social Security currently takes in more tax revenue than it pays out – but benefits are expected to exceed revenue beginning sometime in 2017.

The cost of health care is of particular concern. About 1 in 3 Americans are not at all confident that they will be able to take care of medical expenses in retirement, and confidence in government programs is on the decline. In the December 2008 U.S. Unretirement Index survey, 33% were “not confident at all” that they’d receive traditional Medicare benefits, and 39% expressed the same doubt they’d receive government prescription benefits. Working past traditional retirement age to receive health care benefits rose from the sixth most common reason to the third since the benchmark study in August 2008, with 64% listing it as a reason to postpone retirement.

According to the Employee Benefit Research Institute, a 65-year-old retiring in 2016 who lives to age 80 will need $219,000 in savings to pay for premiums and to cover out-of-pocket expenses each year. An individual who lives to age 90 will need $409,000 at age 65 in savings to pay for premiums and out-of-pocket expenses.2

In Canada, 70% are “very confident” or “somewhat confident” that they will receive prescription drug benefits from the government in retirement, and 57% are very or somewhat confident they will receive medical or dental benefits from their employer. However, 19% admit they are not confident in their ability to pay for medical expenses in retirement.

Whatever your confidence level in the government, it’s clear that it’s important to take charge of your retirement income. While government programs will likely remain available in some form, your retirement plan should never be reliant on government sources alone to care for your expenses.

About Sun Life's Unretirement Index:
U.S.

Canada

Sources

1 Reno, Virginia P. and Lavery, J., National Academy of Social Insurance, How will boomers affect social security?, Social Security Brief No. 22, May 2006
2 Fronstin, P., Employee Research Benefit Institute, Savings Needed to Fund Health Insurance and Health Care Expenses in Retirement , July 2006

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