Monday, July 7, 2014

Retirment-Not the Same for Everyone

The Population Reference Bureau released a recent story on retirement:  No One-Size-Fits-All Path to a Secure Retirement for U.S. Elderly. Of course we know that with the boomers, the number of those reaching retirement age will be larger than before. We also know people are living longer. So what does this mean for saving for retirement?  According to this report

[I]ndividuals saving for retirement should consider more than average life expectancy as their planning horizon... "There's a wide range of life outcomes." For those turning 65 in 2015 (born in 1950), one in five men is expected to live beyond his 90th birthday, while one in five women will still be alive at 93.

And income plays a role in longevity. Higher-earning people tend to live longer, and the gap has widened, he points out. Hilary Waldron of the Social Security Administration examined the remaining life expectancy of those turning 65 between 1977 and 2006, based on their lifetime earnings.1 Over nearly four decades, life expectancy rose roughly one year for the bottom half of earners, but almost six years for the upper half. Among those who turned 65 in 2006, men in the top half of earners could expect to live more than five years longer than men in the bottom half.

Discussing the sources of income and the "three-legged stool", the article notes the role of Social Security

Sources of income in old age vary widely across the income spectrum ... Social Security is the primary or only source of old-age income for elderly with below-average incomes, representing more than 80 percent of this group's income. This half of the elderly population is most affected by changes in Social Security benefits. Policymakers examining potential Social Security reforms should give careful consideration to the impact on those in the bottom half of the income distribution....

Noting the change in employer  pension  plans, the article discusses the availability of a pension and how such affects retirement-readiness.

What about the chance of outliving one's savings?  The article discusses this and notes several studies on this issue. "Nearly half (46 percent) of older Americans die with less than $10,000 in financial assets, according to a study ..." Another study found that "[s]ingle people were less likely to be adequately prepared for retirement than married people, and those with lower levels of education were also more likely to fall short."

Of course, all of us could do more about saving for retirement, but the story notes that a certain segment of the population in particular could do more

The middle-income population could benefit the most from initiatives that would further encourage saving.... Many could use expanded access to retirement savings mechanisms. For example, smaller firms could be offered tax incentives to provide DC retirement plans to their employees. Financial education could help more people understand the advantages of participating in DC plans that have contributions matched by employers and the long-term consequences of liquidating retirement saving before reaching retirement age. Additionally, research is showing that automatically enrolling new employees in employer-sponsored plans, and providing them with an opportunity to opt out rather than requiring them to opt in, increases their participation

http://lawprofessors.typepad.com/elder_law/2014/07/retirment-not-the-same-for-everyone.html

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