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Lower Than Low

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Young Americans tend to be too poorly prepared for retirement for tax increases to make their situation any more dire than it already is.

Alicia Munnell and other researchers at the Center for Retirement Research at Boston College write about the possible effect of higher tax rates on national retirement readiness in a paper posted on the center’s site.

The researchers used data collected in connection with efforts to develop a National Retirement Risk Index sponsored by Nationwide Mutual Insurance Company, Columbus, Ohio.

The researchers analyzed the impact of a scenario in which federal tax revenue would rise to 28% of U.S. gross domestic product in 2050, from about 18% today.

The percentage of all households at risk of being unable to continue their current standard of living after retirement could increase to 54%, from 51%, the researchers estimate.

The percentage could increase to 47%, from 41%, for early boomers

and to 52%, from 48%, for late boomers, Munnell and colleagues write.

The percentage of boomers affected could increase to 58%, from 55%, the researchers estimate.

Generation Xers “can respond to the tax increases by reducing consumption both during their worklife and in retirement,” the researchers say. “The reduction in planned consumption in retirement reduces the target replacement rates. But this reduction is offset by the need for greater post-retirement income in order to pay the higher taxes in retirement.”

The researchers note that, even among Generation X members in the top third in terms of income, only 51% seem to have a good shot at maintaining their current standard of living after retirement. About 37% of the high-income early boomers and 36% of the high-income late boomers appear to be at risk.

- Allison Bell


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