Posted by: Michael Mandel on June 06
If I had a dollar for every scare story about Americans not saving enough for retirement, I could retire tomorrow.
That’s why I enjoyed reading the new study from the Center for Retirement Research at Boston College, directed by Alicia Munnell. The study “measures the share of working-age households who are at risk of being unable to maintain their pre-retirement standard of living in retirement.”
The headline number from the study was scary: 43 percent of households are at risk of falling short in their retirement resources. That even takes into account their housing wealth.
But the study makes a point of stressing the good news as well:
But the situation is not hopeless—if people chose to work longer—even just two years—and save 3 percent more, they can substantially improve the outlook for their retirement security.
In fact, some of the underlying numbers in the study suggest even more optimism to me. Just working two years longer reduces the percentage of households at risk from 43% to 32%. This means that even retirement procrastinators have a chance to catch up at the end of their work life.
The other fascinating tidbit which comes out of the study is that one-income households are in substantially better long-term shape than two-income households. So 23% of one-earner couples are at risk, compared to 45% of two-earner couples.
Why should this be? Just because of the way that the Social Security laws are written. As the study notes:
This outcome is virtually inevitable in a Social Security system that provides a 50-percent spouse’s benefit. As women go to work, they increase pre-retirement earnings but often fail to increase the benefit received.
To put it a different way: The calculations assume that two-earner couples have a higher target retirement income than one-earner couples, since the two earner couples had a higher income during their working lives. However, one-earner couples get the added Social Security benefit for the non-working spouse, which pushes up their retirement income.
Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.