With the first of the Baby Boom generation having reached the traditional retirement age of sixty-five in 2011, the number of retirement age individuals is expected to grow by 10,000 each day for the next fifteen years.
By 2030, when the last of the Baby Boomers will have turned sixty-five, an estimated 18% of the US population, or sixty-five million Americans, will have reached retirement age.
Up In Smoke provides a startling examination of the status of each of our nation’s retirement systems and explores how a pending retirement crisis could threaten the US economy. Those nearing retirement, as well as generations to follow will increasingly be seeking an understanding of how we arrived at this difficult place and what hope lies ahead. Up In Smoke provides those insights.
Richard DeProspo is an investment professional with over 30 years’ experience advising state and local governments throughout the country. An expert on public employee pension management, he has lectured widely on the topic and advised numerous municipalities and public pension funds on the proper management of employee retirement liabilities.
Mr. DeProspo holds B. A. and M.B.A. degrees from the State University of New York. Up In Smoke in his first non-fiction work.
The GAO just released a new report on retirement security. Their conclusion: most households approaching retirement have very low savings. Just how low, though, is startling. Among households aged 55 and older, one-half have no retirement savings at all in 401(K), IRA or similar defined contribution accounts. Similar findings were reported in a 2013 study of the Federal Reserve Bank, along with the fact that for those age 55 and older that do have retirement accounts, the median balance was just $111,000.
Up in Smoke
For the typical household today, despite its level of payout falling well below median family wages, Social Security still provides the greatest share of retirement income. According to records of the Social Security Administration (SSA) 52% of married couples and 74% of unmarried people over age sixty-five receive more than half of their income from Social Security. Thirty-five percent rely on it almost exclusively. For lower income households, the share is much greater
One must also take into consideration the level of benefits of Social Security, relative to modern day costs of living. Average payments to beneficiaries are currently in the range of $1,300 per month and are taxable. This places the retiree who relies solely upon Social Security at a point below the poverty line. Further, changes to the “Full Retirement Age”, the age at which workers are entitled to full benefits under the program, are moving full benefits from age 65 to 67. Currently, only those individuals born prior to 1937 would qualify for full retirement at age 65. For those born after 1942, the full retirement age moves to 66 and for those born after 1959, that age moves to 67. For those who plan to continue to retire at 65, as many have in the past, these workers will see a reduced rate of benefits relative to that of full retirement age.
It’s also important to consider that for the generation that preceded the Baby Boomers, the Greatest Generation as Tom Brokaw has dubbed them, Social Security was most often supplemented by employer sponsored pension plans. By 1980 the proportion of private sector workers covered by corporate sponsored defined benefit plans had climbed to 38%52. Public employee retirement systems covered an additional 8–10%. The combination of employer provided retirement benefits and Social Security payments thus provided, at least for many of this generation, a reasonably comfortable retirement.
Unfortunately, for the Baby Boomers who follow, the employer-sponsored retirement plan was largely phased out by the emergence of defined contribution or 401(k) plans adopted in the early 1980s. And so, for the Baby Boomers, the largest generation of retirees in US history, many must look only to personal savings, either through 401(k)s, IRAs or other plans, to supplement the low levels of funding provided under the Social Security system.