With regard to retirement income, the generation of currently retired people may have it easy compared to the generations that follow. One study shows that nearly 45 percent of households are at risk of not having enough money to maintain their current standard of living at retirement.
These numbers increase for those born after 1955. Those of you who are now retired, or plan to retire soon, may have a retirement plan from one or multiple sources. Future retirees may not have any retirement plan. There are several factors currently taking place that suggest strongly that the generations that follow, including our kids who are Generations Xers (born 1965-72), will face a potential retirement income crisis.
The U.S. savings rate is near zero. Many people have almost nothing in savings for retirement - a particular problem if they also do not have a retirement plan.
Future retirees who do not have a defined benefit plan or defined contribution plan may be forced to rely on Social Security income alone - and this means a lower standard of living.
DBPs are going away in favor of DCPs - the latter generally a 401(k) plan. Many people have less than $60,000 in 401(k) funds at retirement - a woefully inadequate source of retirement income when the average life span is increasing.
People at lower income levels often make poorer 401(k) decisions than higher income folks with 401(k)s, resulting in lower portfolio returns and a lower pool of future retirement funds.
Full retirement payouts under Social Security are moving to age 67 for those born in 1960 or later, meaning many will have to work longer to get full Social Security benefits (and paying in for additional years and likely on larger base salaries).
Social Security may be re-indexed such that annual increases will be at lower levels than in the past - meaning slippage in real income if Social Security is the primary source of retirement income.
Medicare cost increases will increase faster than Social Security increases resulting in relatively lower Social Security income streams.
Many people in the 50 to 55 age group who can see retirement coming realize they have neither put enough away on an annual basis nor have started saving for retirement soon enough. The result is that many cannot retire when they had planned and must work additional years.
Inflation may increase faster than retirement income resulting in a lower standard of retirement living.
Many retirement plans do not come with guarantees of annual increases, or increases that at least match cost of living increases, leaving the potential for lower real retirement income.
Many public and private retirement plans are woefully underfunded and may not have made investment decisions that match growing retirement obligations. Some of these public and private retirement plans could go bust or be forced to cut back payouts to retirees.
The bottom line for anyone reading this is very simple - ask yourself if you are saving enough for a sufficient period of time that the income at retirement will at least come close to income before retirement. Do not forget about inflation. Doing nothing is not a real alternative.
F.C. "Ted" Weston, Jr. is a professor emeritus in computer information systems at Colorado State University.
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