Why American Workers’ Retirement Income Security Prospects Look so Bleak: A Review of Recent Assessments

Abstract

Several recent assessments suggest that the majority of U.S. workers are at risk of having inadequate resources to maintain their work-life standards of living in retirement. These assessments are often based on models that fail to reflect patterns of income, consumption and savings that vary over workers’ life cycles. They extrapolate younger workers’ observed savings behavior into the future ignoring workers’ capacity to catch up after children leave home, the mortgage is paid off, and other early-life obligations have been discharged. The measurement of preretirement income and its spendable portion as an indicator of living standard in working years is often exaggerated owing to inappropriate indexing. This leads to overestimates of earnings to be replaced in retirement, underestimates of the income replacement capacity of Social Security for various segments of the workforce, and misperceptions about workers’ own responsibility for securing their retirement prospects. Although clearly some workers are not saving sufficiently to maintain their standards of living throughout retirement, the situation is less dire than a number of studies have suggested. This general conclusion still holds with a sensible consideration of health care costs.

Keywords: Retirement, income security, Social Security, standard of living

JEL Classification: H55, J26, D10, D31, D91