Tags: Samuelson | retire | saving | income

WaPo's Samuelson: The Retirement Crisis Myth

By    |   Monday, 28 April 2014 11:53 AM

A massive retirement crisis looms as aging baby boomers approach retirement with little savings.

Or maybe it doesn't.

"Studies aside, there’s little real-world evidence of pervasive under-saving," writes Washington Post columnist Robert Samuelson.

Editor’s Note:
Retire 10 Years Earlier With These 4 Stocks

The nebulous "replacement rate," or amount of pre-retirement income retirees need, may be a source of much of the doom saying, he asserts.

Retirees are supposed to have a "replacement rate" of 80 percent of their pre-retirement income in order to maintain their living standards. But it's not clear where that figure comes from.

"Whatever its origin, the target is misleading," Samuelson says. "It's disconnected from financial realities."

The reality is that retirees no longer pay many expenses that burden younger, working people, including Social Security and Medicare payroll taxes, commuting costs and often mortgages and children living at home.

So what's the correct replacement rate? That's hard to say, but the concept isn't useful anyway, Samuelson opines, arguing that maintaining pre-retirement living standards is a poor public policy goal.

"How well people live in retirement depends mostly on how productively and prudently they lived before retirement. It's a matter of personal responsibility. Public policy should aim more modestly at protecting against hardship."

About 80 percent of seniors aged 65 to 74 own their own homes, and half have paid off their mortgages, he notes, citing information from the Investment Company Institute (ICI).

Seniors can also rely on Social Security, pensions, IRAs and 401(k) accounts. According to ICI, the median value of IRAs and 401(k) accounts for households aged 55 to 64 was $100,000 as of 2010.

Estimates on much income people need in retirement vary tremendously, Samuelson notes. A study by University of Wisconsin economists estimates that just 10 to 15 percent are not saving enough. Retirees, they say, cut their spending as they age and become less active. But Boston College research estimates half of Americans aren't saving enough for retirement.

Seniors are more upbeat about their finances than younger Americans are, Samuelson notes. According to a University of Chicago study, most aged 65 or older were satisfied or more or less satisfied with their financial situation, compared with 67 percent of those 50 to 64.

Still, saving for retirement is the top financial concern for Americans, according to a new Gallup poll. Most Americans (59 percent) worry about not having enough in retirement, the survey finds.

"Retirement may be a time that many working adults look forward to, but it is paradoxically a source of stress in the here and now," Gallup states, adding that the concern has regularly lead the list of top financial problems.

"For a country that now has a life expectancy at birth of 78.7 years, retirement savings for post-work years is considered a matter of national importance."

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

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A massive retirement crisis looms as aging baby boomers approach retirement with little savings. Or maybe it doesn't.
Samuelson, retire, saving, income
Monday, 28 April 2014 11:53 AM
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