Congressional Committee Addresses ‘Retirement Crisis’

“We Boomer face a much different future,” Olivia S. Mitchell told the hearing participants. Mitchell is a business professor at the Wharton School and executive director of Wharton’s Pension Research Council. “We worry that Social Security and Medicare, as well as the disability insurance system, is fragile. Few of us have retiree medical coverage and traditional defined benefit pensions.

“Some of us with defined contribution pensions have not saved enough, nor are we converting our assets into longevity-protected income streams so as to avoid outliving our saving,” Mitchell said. “Interest rates are so low that holding TIPS is a losing proposition. With longer lifespans in the offing, we very much need protection for long-term care costs, but the products aren’t widely available or affordable. And many more Boomers are in debt than we have seen in generations.”

Mitchell provided considerable detail on why retirees carry more debt today, what the sources of the debt are, and the impact it has on the broader economy. She also stressed the need for more education to help consumers navigate these turbulent waters.

“Boomers could also do better with more access to financial advice, which can generate potentially important rewards in the form of lower debt for those nearing retirement,” Mitchell said. “They also need more information on the benefits of delaying retirement; indeed, many have come to this conclusion on their own.”

Most importantly, “deferring Social Security claiming produces a much higher retirement income for many: for instance, delaying claiming benefits from age 62 to 70 can mean an additional 76% more in monthly payments,” Mitchell said.

Next to Social Security, the other key area for retirement assets of course are benefit pension plans. But 401(k) plans have fallen short of providing the same value as the retirement plans of a generation ago, according to Richard W. Johnson, director of the Program on Retirement Policy at The Urban Institute.

Johnson told hearing participants that 401(k) plans generate substantial retirement income only if the individual makes significant contributions to the plan each pay period, invests wisely, and doesn’t touch funds in the account before retirement. Based on current figures, Johnson said the average individual with a 401(k) plan can expect to receive only $500 per month in retirement.

To help seniors be better prepared for retirement, Johnson urged Congress to consider four policy actions:

• Safeguarding incomes for the most vulnerable seniors, meaning those with limited incomes and resources.
• Protecting seniors from high out-of-pocket health and long-term care costs, including the creation of a program to help families finance long-term care.
• Encouraging lifetime income, by considering reforms that make annuities more attractive and would increase public confidence in them.
• Promoting work at older ages, including the encouragement of flexible work schedules by employers, and possibly even the raising of the federal retirement age to 70.

However, there are some encouraging changes in today’s working generation, according to Johnson. The most obvious is that more women are working and they are earning more than previous generations. That increases household income, and enables women to earn Social Security credits and 401(k) earnings on their own.

Americans are also healthier overall than prior generations, work longer careers, and have the opportunity to save more for retirement—if they do so wisely, Johnson said.