Alicia Munnell, director of the Center for Retirement Research at Boston College, presented the afternoon general session at the FPA’s national conference in San Diego on Friday, telling attendees, “We have a significant increase in retirement needs and a decrease in available retirement resources.”
Munnell said the reason for this is the fact that people are living longer and health care costs are rapidly rising. “Two-thirds of older people will need some sort of long term care, and a quarter will need to be in a nursing home for at least a year,” she said.
She then turned to the traditional “three legs” of retirement; Social Security, retirement plans and personal savings.
With regard to Social Security, she noted it will replace “less and less” of pre-retirement income. Of retirement plans, she said only half of workers currently have a retirement plan. For those that do, defined contribution balances were far below their potential even before the market crisis hit in 2008. Lastly, she said human behavior causes people save too little beyond Social Security and pensions, and personal savings continue to suffer as a result.
“This was all occurring before the crisis of 2008,” she said. “Then we experienced a 57% drop in the stock market, a 31% drop in home values and unemployment that peaked at 10% (and remains at 9%). For this reason, baby boomers flooded the labor market, but there were no jobs to be found, which contributed to unemployment, especially for older men.”
In order to combat the situation, people took their Social Security early, almost as a form of unemployment. They were then locked in to low monthly payments for the remainder of their lives.
She quoted numbers from the center’s National Retirement Risk Index, saying that 44% of households were considered “at risk” before the crisis, and 51% of households are now.