RETIREMENT ADEQUACY IN THE UNITED STATES: SHOULD WE BE CONCERNED?
Vickie Bajtelsmit, PhD, and Anna Rappoport, FSA
Is there a retirement crisis looming in the United States? This question instigates intense debate among researchers, policy-makers, employers, financial institutions, retirement planners, and individuals. To help answer this question, veteran retirement researchers Vickie Bajtelsmit, PhD, and Anna Rappoport, FSA, reviewed and summarized various studies of retirement adequacy in a report sponsored and funded by the Society of Actuaries.
It turns out there isn’t a definitive answer to the question, partly because the analyses and conclusions depend significantly on who is asking the question, the analytical methods they use, and the assumptions they make. Policy-makers are interested in whether government programs should be modified or retained, and the political leaning of the researchers can influence the results. Employers focus on retirement adequacy as a workforce management issue to address retention and transitions in their workforce. Different employers will have varying views on the productivity of their older workers. Individuals and their advisers want to know the age they can retire with financial security and an acceptable standard of living.
The following assumptions are critical for any analysis that examines retirement adequacy:
- When and how workers will retire (for example, will they work part-time for awhile)
- The desired standard of living in retirement
- Retirees’ health status and how long they might live
- Household structure while working and in retirement
- Whether the level of existing Social Security benefits will be retained
- Existence of traditional pension benefits
- Levels of retirement contributions made by employees and their employers
- Rates of investment returns, inflation, and salary growth
- Whether home equity is deployed to improve retirement security
- Whether potential shocks due to medical and long-term care expenses are reflected
It’s not too hard to imagine reasonable differences in these assumptions that can produce significantly different conclusions. Regardless of these potential differences, it’s most likely that in the future, many Americans won’t retire full-time at age 65 under their current standard of living, and with no further earnings from work. Whether that result is a crisis can depend on your perspective, as noted above.
The authors conclude that, “After careful consideration of this body of research, it is clear that the U.S. retirement system lies somewhere between crisis and serendipity.” For readers interested in a thoughtful analysis of the retirement crisis question, this report is a must-read.
This article was recommended by Steve Vernon, Research Scholar at the Stanford Center on Longevity.