Will Future Retirees be Able to Maintain Their Living Standard?

Transcript of Podcast Episode 253

Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, Will Future Retirees be Able to Maintain Their Living Standard? ​

Alarm bells went off recently when a study by Center for Retirement Research at Boston College concluded that 47 percent of people were at risk of not being able to maintain their living standards in retirement.[1] The results are comparable to earlier studies done by the same organization.

The authors express concern that not only is a significant part of the population in danger of not being able to maintain their standard of living, but many people don’t even realize it. The authors hope that by increasing public awareness of the problem, people will be more likely to take positive steps toward saving for retirement.

One reason why things may be worse than many people realize is what’s known as the “wealth illusion.” $100,000 in savings may seem like a lot of money to many people, but it’s not going to give you much in retirement. The report estimates that $100,000 will provide $617 per month of retirement income for someone age 65.[1]

Another issue is the “two earners/one saver” problem. In a two-income household, people sometimes forget that they will have to replace both spouses’ incomes to maintain their standard of living. So, when only one spouse has a significant retirement plan, the situation may be worse than it first appears.

Also, the Government Accountability Office recently published their own study that has caused concern. Their conclusion was that only one in ten low-income workers between the ages of 51 and 64 had any retirement savings at all.[2]

The report indicates that the trend is getting worse. It also suggests that the problem of income inequality is growing. For older households, the disparities between low-income and high-income retirement accounts were greater in 2019 than in 2007. They state that about one in ten low-income households had a retirement account in 2019, compared to about one in five in 2007.[2]

But how bad are things really? In an editorial for the Wall Street Journal, Andrew Biggs, a senior fellow at the American Enterprise Institute, has a different take. For one thing, he points out that most people classified as “low-income” weren’t actually paid wages at all.[3] The GAO study looked at people’s income rather than total earnings. That means the study failed to consider the impact of other sources of funds, like social benefits payments and investment income. The difference is that retirement savings are used to replace lost employment wages when you stop working. The other forms of earnings continue whether you’re working or not.

Mr. Biggs also points out that Social Security benefits are designed to be progressive in nature.  That is, Social Security replaces a much larger percentage of a low-income worker’s wages than a high-income worker’s wages.

In addition, he noted, the GAO report ignores all the benefits Americans have qualified for under traditional pensions. While traditional pensions are nowhere near as popular as they were a few generations ago, they are still a huge factor, especially among public sector workers. Mr. Biggs estimated their value at more than $17 trillion.[3]

So, while some people believe the problem is a ticking timebomb, others, such as Mr. Biggs, believe that “[a] more nuanced picture of the U.S. retirement system shows that while it isn’t perfect, most Americans who need to be saving for retirement are doing so.”[3]

For you as an individual, perhaps the best thing you can do is take an honest and thorough look at your potential sources of income at retirement. Your Security Mutual life insurance advisor is here to help. Your advisor can help you sort through your options and help get the process started. He or she will assemble your team and coordinate with your attorney and tax professional to review your situation and to determine the plan and strategies that are appropriate for you and your family.

[1] Chen, Anqi, Yin, Yimeng, and Munnell, Alicia. “How Well do People Perceive their Retirement Preparedness?” crr.bc.edu https://crr.bc.edu › wp-content › uploads › 2023 › 05 › IB_23-12.pdf (accessed Sept. 21, 2023)

[2] United States Government Accountability Office.  “Older Workers: Retirement Account Disparities Have Increased by Income and Persisted by Race Over Time” gao.gov  https://www.gao.gov/products/gao-23-105342 (accessed Sept. 22, 2023)

[3] Biggs, Andrew G. “You’re Probably Saving Enough for Retirement.” Wsj.com https://www.wsj.com/articles/youre-probably-saving-enough-for-retirement-savings-social-security-finance-taxes-5fd63332?mod=MorningEditorialReport&mod=djemMER_h  (accessed Sept. 21, 2023)

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