Association for Public Policy Analysis & Management

Roundtable: Threats to the Financial Security of Retirees

(Poverty and Income Policy)

Ongoing social, economic, demographic, and policy changes are transforming the way Americans prepare for retirement and raising concern about the economic well-being of future retirees. One of the most important trends has been the shift away from traditional employer-sponsored pension plans to 401(k)-type plans. Instead of guaranteed pensions based on years of service and final salary, retirement benefits from 401(k) plans depend on how much employees set aside from their paycheck each period and how well their investments perform. These do-it-yourself retirement plans can generate substantial retirement income only if workers choose to make significant contributions to their accounts, invest the funds prudently, resist the temptation to dip into their accounts before they retire, and manage their funds wisely after they retire. The evidence suggests that for most Americans 401(k) plans have fallen short so far. Other changes create additional challenges. The recent increase in Social Security’s full retirement age effectively cut payments to all new beneficiaries. More cuts may be needed to improve the system’s long-run finances. As people live longer, their retirement savings must last longer. Yet, wages for the majority of male workers have stagnated over the past few decades, leaving fewer financial resources that can be set aside for retirement. Unusually low interest rates have depressed investment returns for those who do save, and the prolonged housing slump has reduced home values, the largest asset held by most retirees. Many older people who lost their jobs during the recession are still out of work, destroying their ability to save for retirement and forcing many to dip into their savings much earlier than expected. And sharp swings in the stock market have added to the uncertainty surrounding retirement security. These developments have left many Americans unsure about whether they will be able to enjoy a comfortable retirement. Another set of trends, however, paint a rosier picture of the long-term prospects for retirement security. Women are now working and earning more than in earlier generations, partly offsetting men’s declining labor market fortunes. Women’s higher earnings boost family incomes and enable women to amass Social Security credits and 401(k) accounts in their own names. Because Social Security benefits are partly tied to the growth in average earnings across the workforce, strong wage growth among the nation’s top earners has boosted Social Security payments to beneficiaries at all income levels, despite the sluggish earnings growth among low and moderate-wage workers. Americans now in their fifties and sixties are better educated than ever and healthier than in the previous generation. As a result, many older people are working longer, earning more over their careers, and saving more for retirement. And many Baby Boomers benefited from the run-up in housing values and the stock market during the 1990s and the late 1980s, so many still have substantial wealth despite the recent market setbacks. This roundtable bring together leading retirement experts to sort through the contradictory evidence and debate the retirement prospects of the baby boomers and later generations.