Rising unemployment could wipe out the Social Security surplus sooner than anticipated.

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We already knew that the economic downturn has kicked the stuffing out of our savings. Now comes a spate of bad news about the other two legs of what has long been called three-legged stool of retirement finance: Social Security and pensions.

Rising unemployment and falling payroll tax revenues mean the Social Security surplus is likely to all but vanish next year, nearly a decade ahead of schedule. And public pension funds lost nearly $1 trillion as investments tanked in the last year.

As recently as last August, the CBO predicted that surplus would exceed $80 billion this year and next, then rise to around $90 billion before slowly evaporating by 2020. Now, it forecasts this year's surplus at $16 billion and next year's at $3 billion.

The Washington Post,citing a new report from the Congressional Budget Office, explains the implications: "The Treasury Department has for decades borrowed money from the Social Security trust fund to finance government operations. If it is no longer able to do so, it could be forced to borrow an additional $700 billion over the next decade from China, Japan and other investors. And at some point, perhaps as early as 2017, according to the CBO, the Treasury would have to start repaying the billions it has borrowed from the trust fund over the past 25 years, driving the nation further into debt or forcing Congress to raise taxes."

The economic downturn also imperils pensions, which cover about about 14 million state and local employees and paid out almost $163 billion to seven million retirees in 2006-2007, according to the Census Bureau.

Their investment losses mean public agencies need to find about $100 billion each year for the next 20 years, money that will come from increased taxes, slashed benefits, budget cuts in other areas, or borrowing, according to the Center for Retirement Research at Boston College.

"Massive investment losses sustained by public pension funds are pressuring state lawmakers from New Mexico to New York to spend more taxpayer money to shore up their programs, boost the retirement age for newly hired government workers and seek more from employee paychecks," the Associated Press reports.

Private pensions are scarcely better off, with a $400 billion funding deficit at the end of 2008 for pensions at 1,500 U.S. companies that represent about 85 percent of the stock market, according to Mercer, the global consulting firm.

In recent years, income from work has become the fourth leg of the "retirement" income stool, and the shakiness of savings, pensions and Social Security is only increasing its importance. A new report (pdf) shows that, at least in California, the percentage of people working at or near retirement has increased significantly since the mid-'90s. Among Californians 55 to 64 years old, 63 percent are working, up from less than 55 percent in 1995. Nearly 30 percent of those 65-69 are working, up from 20 percent in 1995.

"The good news is that some Californians are choosing to work longer because they can," said Alissa Anderson, deputy director of the California Budget Project, which issued the report. "The bad news is that for other Californians, working later in life is a necessity, reflecting the fact that they can't afford to retire, at least not at the traditional retirement age."