Will You Have Enough to Retire on?: The Retirement Security 'Crisis'
8 Pages Posted: 21 Feb 2009
Date Written: February 11, 2009
Americans are concerned about the state of preparedness for retirement, and many believe that retirement security is nearing a crisis. As life expectancies increase, traditional defined-benefit pensions decline, and Social Security faces significant reforms, many argue that a significant share of Americans will be at risk of an inadequate income in retirement. But despite these anxieties, most older Americans seem well prepared for retirement. Controlling for household composition, the Social Security replacement rate for typical workers born in 1940 was 63 percent of average preretirement earnings, and the median total pension replacement rate was 92 percent of prior earnings - well over financial planners' recommended rate of around 75 percent. Even among the younger 1960 birth cohort, for whom the projected median Social Security replacement rate declines to 54 percent, the median total pension replacement rate remains at 82 percent. While policymakers should work to strengthen Social Security and private pension savings, talk of a crisis in retirement income preparedness appears premature.
Keywords: Social Security, retirement income, pensions
JEL Classification: H55, J26
Suggested Citation: Suggested Citation