Can those aged 45 to 64 be saved from misery in retirement? How?

Original Reporting | By Meade Klingensmith |

Note: Important additional reporting is available by clicking on each of the “dig deeper” boxes that appear throughout the article. If you prefer to view the article in Remapping Debate’s conventional style (with bottom boxes and sidebars), click here.

May 8, 2013 — “Up until very recently, each generation of retirees did better than the last, not just because incomes were rising in general, but also because they were closing the gap between their pre-retirement and their retirement incomes,” said Monique Morrissey, an economist at the Economic Policy Institute. “Now,” she continued, “we’re at the first time in modern U.S. history where that gap is growing and it’s growing dramatically.”

Morrissey’s assessment that American workers are facing a retirement security crisis has been echoed in recent articles in The Wall Street JournalNewsday, and Forbes. Strikingly, however, Remapping Debate found that researchers and policy advocates have generally spent little time trying to solve the problem for those already aged 45 to 64.

The evidence we have pieced together through additional probing suggests that for those aged 45 to 54, there is a range of policy options — beyond the fatalistic prescription to “just work longer” — that has the potential to materially enhance retirement security, if adopted quickly. For those aged 55 to 64 the outlook is bleaker, though temporary increases in Social Security payments targeted to that group (or its poorest members), or an expansion of anti-poverty programs such as Supplemental Security Income (SSI), could, if enacted, ameliorate the worst of the anticipated impacts on the poorest retirees.

Despite the availability of a potential solution for the 45- to 54-year-old group and of an improved safety net for the 55- to 64-year-old group, no one we spoke with suggested that the political will to effect such changes exists today.


The numbers and their consequences

According to an analysis by the economist Teresa Ghilarducci and her team at the Schwartz Center for Economic Policy Analysis at the New School, 34.6 percent of workers currently aged 45 to 54, and 31.2 percent of workers aged 55 to 64, are projected to live at or below 200 percent of the poverty level when they retire, if nothing is done to change the picture. Why would it be cause for concern if these workers (about 27 million Americans) were going to live with retirement income up to twice the poverty line? For one thing, Ghilarducci said, such people remain in “a chronic state of want.”

Eric Kingson, a professor of social work and public administration at Syracuse University and founding co-director of Social Security Works, a group that advocates for the protection of the Social Security system, said a retiree with income below 200 percent of the poverty line who faces significant health care costs is often forced to compromise between her health care and other necessities, such as clothing. For some, he said, health care loses out and “people cut their medicine.”

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Ghilarducci added, “If we don’t do something, 49 percent of middle-class retirees will be poor or near poor when they reach retirement age.” This would be, by a wide margin, the highest elderly poverty rate since the U.S. Census Bureau began compiling poverty statistics in 1959. The previous high was 35 percent in 1960, and the most recent data reports it as 15.1 percent (according to the newer, and, most believe, more accurate, Supplemental Poverty Measure).

Another snapshot of the problem facing 45- to 64-year-olds as they reach retirement age comes from the Employee Benefit Research Institute (EBRI). Last month, EBRI reported that 57 percent of workers have less than $25,000 in total savings (excluding home value and defined benefit pensions, the latter of which are enjoyed by only 15 percent of private-sector workers). 28 percent of workers report less than $1,000 in savings.

For workers who might expect to live twenty years after retirement, $25,000 in savings would leave them with less than $105 to live on each month beyond their Social Security payments. According to Eric Kingson, this amount of money is insufficient to protect against “just about any unexpected problem.” He cited medical emergencies, car problems, and home repair as events that can deeply cut into such savings.

Eric Kingson said the impending retirement security crisis ought to be a public concern not only because “people should be able to maintain a reasonable standard of living” in retirement, but also because it will create “all sorts of consequences: consequences for [retirees]; but also consequences for their younger family members.” More and more retirees could be forced to depend on their children, he said, which would significantly cut into those children’s own income and savings during their peak earning years, exacerbating the retirement security crisis for younger generations.

Kingson believes this crisis is an opportunity to “start imagining what kind of a world we want…Human dignity is important,” he said. “These programs [those that help prevent elderly poverty] give expression to core values in our society. If you want to be cynical, they’re quaint or they’re old-fashioned, but…fundamentally there’s something decent about providing protection for ourselves and our neighbors. That’s something we need to get back to in this country.”


Fatalism, especially with regard to 55- to 64-year-olds

A common view is that because of political resistance, the type of legislation necessary to make a marked difference in retirement security for future retirees is impossible; for workers aged 55 to 64, most say, it is too late for most options anyway. Anthony Webb, a senior research economist at the Center for Retirement Research at Boston College, told Remapping Debate retirees face three options: they can work longer, attempt to save enough to guarantee retirement security (which he described as “implausible”), or face dramatically reduced levels of consumption in retirement. “Now, given those choices, what would you choose?” We asked whether public policy changes, such as boosting Social Security or some other form of government spending, could create a fourth choice. He replied, “Given the current political climate, I think that the discussion is about how we keep what we’ve already got rather than further expanding benefits.”

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