Understanding "The Greatest Retirement Crisis in American History"

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Understanding "The Greatest Retirement Crisis in American History"

According to a recent headline in Forbes, the nation is facing "The Greatest Retirement Crisis in American History."1 The article predicts, "In the decades to come, we will witness millions of elderly Americans, the Baby Boomers and others, slipping into poverty. Too frail to work, too poor to retire will become the ‘new normal' for many elderly Americans. . . . [A] catastrophic outcome for at least a significant percentage of our elderly population is inevitable. With the average 401(k) balance for 65-year-olds estimated at $25,000 by independent experts—$100,000 if you believe the retirement planning industry—the decades many elders will spend in forced or elected ‘retirement' will be grim."

Several studies and surveys support this dire conclusion:2

  • The Center for Retirement Research at Boston College estimates that more than half of working-age households face the risk of not having enough saved for retirement.
  • The National Institute on Retirement Security reports that at least 65 percent of workers are saving less than they will need for retirement.
  • The New America Foundation asserts that less than 50 percent of middle-income retirees have any type of pension income, and barely more than half have any form of asset income.
  • According to a PBS survey, 92 percent of Americans believe that a retirement crisis is looming.

The reasons for this so-called "crisis" seem logical:

  • Americans are living longer thanks to advances in healthcare, lifestyle changes due to greater awareness of the risks of smoking, and improvements in automobile safety that have reduced traffic fatalities.
  • At the same time, Americans are saving less because of job losses during the recession, stratospheric college tuition costs for their children, and the housing crash that decreased the value of their homes.
  • Most companies have eliminated pension plans, while the nation's Social Security system is underfunded.

It all makes for a compelling story, but how much of it is true? If we look more closely at the arguments for the retirement crisis, we find two major fallacies:

  1. They assume that retirees need significantly more income than they will actually need.
  2. They significantly underestimate how much income retirees will receive from pension plans.

In fact, Andrew G. Biggs and Sylvester Schieber discovered these same problems in recent studies and articles about the retirement crisis. Biggs is a former principal deputy commissioner of the Social Security Administration...

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