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Is the American Retirement Dream Really that Broken?

Dire jeremiads about America’s looming retirement crisis are so common, that it seems retirementcrisis is one word.

The doom-and-gloom prediction goes like this: Americans are all spendthrifts, living standards are going to take a major downward dive in retirement and Social Security will buckle from the pressure of too many workers supporting too many retirees. It’s a dark vision, says Next Avenue, in the article “What the Future of Retirement Looks Like,” but not all the news is terrible.

Yes, the nation’s retirement savings and the systems behind it are flawed, and Social Security reserves are going to need some boosting, if they are to remain in place beyond 2035. And yes, government obligations for pensions are increasing faster than the assets set aside to pay for them.

However, there’s also news from the non-partisan Urban Institute think tank that presents a more nuanced and less dismal picture of the retirement, especially for younger generations. It’s not cheery, but there are a number of trends that could point to a brighter economic foundation for policymakers who are open to making changes.

Here are four highlights from the report:

The importance of women’s work and earnings to the economy is a major factor. Retirement incomes are expected to increase over the next four decades, and a major factor behind this is women’s improving lifetime earnings. Median lifetime earnings for Xennials (1977-1985) women are predicted to be 129% higher, and 88% higher for Gen X women, taking inflation into account. That translates to improved Social Security benefits and higher savings rates in and out of retirement plans. This is despite the gender gap in pay, which is expected to continue. 

Social Security will need to be shored up. A standard personal finance guide is that retirees need to be able to replace 75% of their income to maintain their standard of living in retirement. With no action from Washington, Social Security will have to cut benefits to pay only 75% of benefits. Living standards for Gen Xers and Xennials will be challenged. This remains a weak point, but we have been here before and it is hoped that our policymakers will not fail to act.

The future for old-age poverty rates depends on whether the Social Security trust funds are strengthened. Social Security will continue to be 85% of retirement for low-income beneficiaries, so any reductions in benefits will hit low-income households hard.

Boomers have the ability to improve retirement security for future generations. The biggest impact on Social Security reform starts showing up, when Gen Xers and Xennials turn 70. If boomers embrace enhanced retirement security as a legacy for future generations by actively campaigning to have Social Security strengthened, this will improve the retirement and aging for generations to come. Some of the presidential candidates have already added helping Social Security, as a part of their ideas for the future. 

Reference: Next Avenue (July 25, 2019) “What the Future of Retirement Looks Like”

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