Breathe Easy, Americans. You (Almost Certainly) Won’t Retire into Poverty.
Retirement planning isn’t easy, but you may be better off than you think.
We’ve been told again and again, for decades, that Americans are failing to save enough for retirement. They’re not offered a retirement plan at work; if offered a plan they don’t sign up; if they do participate they don’t save enough. They can’t manage their investments; they don’t know when to retire; and have no idea how to make a lump sum of savings last for two decades or more of retirement. It seems a hopeless task, at least based on what your read in the news media, which explains why many hope government will set things right by expanding Social Security and establishing government-run savings accounts for every American.
And yet, for the twentieth straight year, more than 70 percent of U.S. retirees tell Gallup they have enough money, not merely to survive or to get by, but to “live comfortably.” Gallup’s latest survey, published in May, showed 80 percent of retirees saying they are living comfortably. U.S. retirees are also substantially more likely than their European counterparts to report being able to maintain their preretirement standard of living.
Other data, from the Federal Reserve’s Survey of Household Economics and Decisionmaking, find that very, very few current seniors face what might plausibly be called a “retirement crisis.” Less than four percent of U.S. seniors in 2020 said they were “finding it hard to get by,” the lowest rate of any age group. Fifty-four percent of seniors say they “always” or “often” have money left over at the end of the month, versus just 39 percent of Americans under age 65. Retirees are the least likely to say that finances control their life or that a lack of money prevents them from getting the things they want, and the most likely to say they are satisfied with the safety and overall quality of the neighborhoods they live in. Indeed, while a Vanguard survey found nearly 60 percent of Americans saying they believe the nation as a whole faces a retirement crisis, only 4 percent of actual retirees say they faced one themselves.
“You just wait,” say the retirement crisis coalition, which includes an odd alliance of the financial industry seeking to get Americans to purchase more of their products and progressives seeking for government to take over retirement income provision and push private savings to the sidelines. For instance, the Gallup poll and other surveys show that working age Americans are indeed concerned about their retirements: 53 percent of working-age Americans in 2021 tell Gallup they don’t think they will have the money to live comfortably in retirement. Perhaps a true retirement meltdown, if not upon us today, is indeed imminent.
But, as Little Orphan Annie sang about “Tomorrow,” the retirement crisis always seems to be a day away. The Gallup data itself show that while working-age Americans indeed worry about their retirement, these worries rarely come to fruition. Twenty years ago in 2001, 59 percent of under-65s worried about their retirement incomes, even higher than today. And yet many of those worried working-age Americans are now today’s overwhelmingly-satisfied retirees. Preparing for retirement is indeed a complex task, for which we get only one shot. It’s not surprising that people always have worried about it.
But to argue that today’s retirement worries are at long last justified, the crisis purveyors should point to some evidence that Americans’ retirement savings have actually gotten worse. Are fewer Americans saving for retirement? Are they setting aside less of their income for old age? Have total retirement savings dropped? Are Americans retiring earlier?
The answer to all of these questions is no, and emphatically so. Various sources of high-quality data confirm that never have so many Americans saved so much for retirement. In the “golden age” of traditional pensions, to which many look back so fondly, only four-in-ten workers participated in such a plan. Today, about six-in-ten have a retirement plan, according to Social Security Administration research. Back in the 1970s U.S. workers and employers set aside 5.8 percent of their total pay for retirement, according to Department of Labor data; in 2017, retirement plan contributions topped 9.6 percent of total wages and salaries. And it’s not just the rich: since 1989, retirement savings have increased among every age, income, educational and racial/ethnic group, Federal Reserve data show. Americans have delayed Social Security claiming by about one year since the turn of the century, and labor supply among older Americans prior to Covid was the highest since the late 1950s, SSA and Bureau of Labor Statistics data show.
And, as for the title of the piece, poverty among seniors is already lower than among children or working age adults. Census Bureau research shows that the share of seniors with sub-poverty level incomes dropped by nearly one-third since 1990 alone. And the Social Security Administration projects that poverty in old age will drop even further in the future.
Now, your mileage may vary. You need to check your Social Security Statement to see what you’re entitled to, while understanding that the Statement may significantly understate the benefits that young and middle aged workers are likely to receive. If you’re young or very low income, don’t kill yourself if you’re not maxing out your 401(1). You may have better uses for your limited salary, like putting food on the table or paying off student loans. But as you enter your 30s, it’s good to start paying into your employer’s 401(k) or an IRA account. And if your employer offers a matching contribution, that’s free money — you should take that up no matter your age or income. Don’t blindly claim Social Security at age 62 without understanding that this is what you’ll be living on forever, and that you can boost your benefits by delaying retirement.
Perhaps most importantly, get a feeling not just for how much you earn, but how much you spend. Because many of those costs — for housing, for taxes, for raising children, for work-related costs, and even for retirement saving itself — will be lower once you retire, while healthcare costs increase. Data from the Panel Study of Income Dynamics shows that the average retiree household spends an amount equal to only around 63% of their salaries during their 50s. And, as public opinion surveys show, most can live comfortably on that amount.
But most of all, don’t panic over every article you read on retirement savings. Remember that news articles are designed to generate clicks, not necessarily to represent the best research and data on how people are or should be preparing for retirement. Retirement planning isn’t easy, but you may be better off than you think.
