Every day, Google automatically emails me search results with the phrase “retirement crisis.” And each day, I see multiple references to the fact, not the possibility, that Americans will fall well short of the incomes and savings they need to support themselves in old age. But this is nothing new, not by any stretch.
For decades, Americans have been told we are terrible retirement savers. We aren’t offered a 401k; if offered, we don’t participate; if we do, we don’t save enough. But these warnings of an imminent retirement crisis have now been around for so long that we can check whether their dire predictions have come true. So far, the retirement crisis has been a no-show.
Numerous studies, supported by largely uncritical media coverage, argue that working-age Americans aren’t saving nearly enough to maintain their standard of living once they retire. It’s unsurprising that 67% of Americans believe we face a “retirement crisis.” In response, Congress is considering $84 billion legislation to encourage retirement saving, while 89% of House Democrats support a multi-trillion dollar expansion of Social Security.
But if Americans are and have been such poor retirement savers, why do we not have a retirement crisis already? We’ve been hearing the warnings for years.
A 2002 Economic Policy Institute (EPI) study delivered “troubling news for millions of Americans now nearing retirement age.” More than 40% of households then-aged 47 to 64 would retire on less than half their pre-retirement income. And nearly 20% would have retirement incomes below the poverty line.
Two decades later, those 47- to 64-year-olds are now in the heart of retirement. And yet the current poverty rate for Americans aged 67 to 84 isn’t the EPI study’s predicted 20% but just 8.6%, down from 10.2% in 2002. Likewise, instead of 40% of retirees being unable to replace half their pre-retirement earnings, an Internal Revenue Service analysis found that fewer than 10% of Americans approaching retirement at the turn of the century retired on less than half of their pre-retirement earnings.
An even more influential study, the Center for Retirement Research’s National Retirement Risk Index (NRRI), was first published in 2006 and continues to be updated today. The 2006 NRRI projected that 35% of Americans born between 1946 and 1954 could not maintain their pre-retirement standard of living in old age. Those early baby boomers are now aged 68 to 76. How did things turn out?
One way to check is simply to ask people. In the Federal Reserve’s Survey of Consumer Finances (SCF), 24% of Americans born from 1946 to 1954 said their incomes fell short of maintaining their pre-retirement standard of living. This 24% figure is nearly one-third below the NRRI’s estimate of 35% of retirees falling short. Moreover, that figure is down from 38% in 1992. Only 14% of retirees born from 1946-1954 reported a “totally inadequate” retirement income, down from 25% in 1992.
In other words, retirement income security appears to be getting better, not worse.
How was the oft-forecasted retirement crisis avoided? One answer is simply that Americans are doing what it takes to prepare for retirement. First, sign up for a retirement plan. In 1973, when traditional pensions were at their peak, less than 40% of private sector workers participated in a retirement plan; today, by some measures, over 60% do.
Second, save at a healthy rate, with total employer and employee retirement plan contributions rising from 5.8% to 8.6% of wages since 1975, according to Department of Labor data. As a result, retirement savings have increased in every age, income, educational and racial/ethnic group.
Third, work longer, with labor force participation among 55- to 64-year-olds at record highs. And finally, delay claiming Social Security, with the average claiming age rising by 1.4 years since 1990. Census Bureau research shows that median retiree incomes have never been higher, and poverty in old age never lower.
None of this means that things couldn’t worsen. Nor should policymakers ignore the gaps in the U.S. retirement system, such as providing every employee with a retirement plan at work. But the worst predictions of a retirement crisis haven’t come true. This means we should look more skeptically at claims that a crisis lurks around the corner that only desperate measures can avert.
Andrew G. Biggs is a senior fellow at the American Enterprise Institute.
Andrew G. Biggs is a resident scholar at the American Enterprise Institute (AEI), a position he has held since 2008. Before joining AEI, Mr. Biggs held multiple positions in the Social Security Administration, including Principal Deputy Commissioner from 2007 to 2008, Deputy Commissioner for Policy from 2006 to 2007, and Associate Commissioner for Retirement Policy from 2003 to 2007. Mr. Biggs served as an Associate Director in the White House National Economic Council in 2005. From 1999 to 2003, Mr. Biggs worked as a Social Security Analyst at the Cato Institute. He previously served as the Director of Research at the Congressional Institute from 1998 to 1999. Mr. Biggs received a B.A. from Queen’s University Belfast, an M.Phil. from Cambridge University, an M.Sc. from the University of London, and a Ph.D. from the London School of Economics.
