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Is there really a retirement-savings crisis in the US?

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The national news is full of stories warning that Americans are woefully unprepared for retirement. An often-cited index of retirement preparedness compiled by the Center for Retirement Research at Boston College claims that, “(Fifty-two) percent of households are ‘at risk’ of not having enough to maintain their living standards in retirement.”

Yet, previous research by retirement experts Syl Schieber and Andrew Biggs finds “… the story about the declining income prospects of retirees is not true.” So, is there really a retirement-savings crisis in America? 

A new study by United Income considers the question from a different angle. It suggests that, due to a pessimistic economic outlook, retirees are simply living more frugally — and leaving behind significant financial assets at death.

{mosads}In the United Income study, CEO Matt Fellowes analyzes consumer sentiment and spending data from the University of Michigan and finds, “The average retired adult who dies in their 60s leaves behind $296K in net wealth, $313K in their 70s, $315K in their 80s, and $283K in their 90s.” In other words, many retirees are dying with money in the bank because they chose to spend less during their working years or retirement.


If you’re not sure whether you should be loosening or tightening your own purse strings, consider that many financial planners suggest a “replacement rate” of 70 percent. The replacement rate is how much of your pre-retirement income you will need in retirement. Social Security was designed to replace about 40 percent of a person’s pre-retirement income, with higher replacement rates for lower-income workers. The remaining amount should be covered by an employer pension and/or personal retirement savings.

For example, a person who earns $50,000 in each of the final five years leading up to retirement should plan to have enough retirement savings to generate $35,000 a year in income ($50,000 x 0.70). This is just a general rule of thumb, and everybody’s retirement needs are different. For example, some find they need less in retirement as their consumption tends to decline and their house may be paid off, while others may face higher expenditures for healthcare. 

To be clear, it is always best for retirees — and everyone else — to err on the side of saving a bit too much, rather than too little. But painting all Americans with the broad brush of a “retirement crisis” creates an incomplete picture of the true financial landscape faced by America’s future retirees. It may also mistakenly lead many to look toward greater dependence on — and even the expansion of — existing government programs, such as Social Security.

Social Security retirement benefits provide income security for millions of Americans. In 2014, 85 percent of married couples and 84 percent of nonmarried people ages 65 or older received Social Security benefits. More importantly, 61 percent of all beneficiaries rely on Social Security for 50 percent or more of their income, and 33 percent rely on Social Security for 90 percent or more of their income.

Yet Social Security faces real and increasingly urgent financial challenges. Calling for further expansions of this already strained program is not a sustainable course of action. Policymakers considering reforming retirement security programs should focus on holistic improvements to make Social Security sustainable and increase Americans’ options to save for their retirement.

On the flip side, the story that many retirees are doing so well that they aren’t spending enough in retirement and are dying with large financial estates has led some to conclude that we should curtail existing tax incentives for retirement saving or increase the estate tax. Again, policymakers should focus on options that will encourage individuals across the income spectrum to work, save and invest so that they can build their own financially secure retirement.

Increasing and expanding the current Saver’s Credit and increasing access to private retirement savings accounts, while increasing access and expanding private saving, would be a good start.


Jason J. Fichtner, Ph.D., is a senior research fellow at the Mercatus Center at George Mason University. Previously, he served in several positions at the Social Security Administration, including as deputy commissioner of Social Security and chief economist.

The views expressed by contributors are their own and not the views of The Hill. 

Tags Ageing economy Federal Insurance Contributions Act tax Finance Financial services Money Pension Personal finance Retirement Social Security

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