For an entirely predictable event, retirement is going to come as a shock to tens of millions of Americans — a financial shock, that is. Many people in their 50s and 60s are about to find that the money they’ve set aside for retirement is too meager to support the standard of living they’d hoped for. Soon, the long-expected U.S. retirement crisis will no longer be a forecast; it’s becoming a brutal fact.
For those at the leading edge of the baby boom, the prospect of an extended retirement with limited means leaves few options. Many will have to work longer than they’d wished, in jobs they don’t like. Many will sell homes they’d hoped to keep — to tap the equity, such as it is. Household budgets will be squeezed, then squeezed again. Workers further from retirement, though, still have time to address the problem — and public policy must start encouraging them to do so.
The retirement-savings deficit has grown so large partly because U.S. employers have stopped providing adequate pensions. Between 1980 and 2006, the share of U.S. private-sector workers covered by an employer’s defined-benefit plan fell from an already low 40 percent to just 15 percent. A savings vehicle intended to supplement traditional pensions — the defined- contribution 401(k) retirement plan — has instead replaced them. This diminished the stock of retirement savings in itself; now, many companies are scaling back their contributions to 401(k) plans, too. Roughly half of all Americans have no private retirement savings at all.
There’s Social Security, but on its own it isn’t nearly enough. It will replace too small a proportion of most Americans’ incomes after they retire. It’s sufficient to avoid poverty in old age, but not much more. One way or another, private saving for retirement needs to rise.