WASHINGTON, D.C., October 31 2005—A new series of policy briefs from the nonpartisan Urban Institute outlines challenges confronting an aging America and assesses their possible solutions.
The series, Older Americans' Economic Security, documents the retirement prospects of the baby boom generation and beyond, pointing to increased pressure on Social Security financing and the needs of vulnerable populations. Among the solutions discussed are longer working lives, incentives to save, and benefit cuts that protect low-income retirees.
"Policymakers are aware of the pressure an aging population will place on such federal programs as Social Security and Medicare," said Eric Toder, an Urban Institute senior fellow and coordinator of the series, "but less attention has been paid to the variations in outcomes among the older population and how that could influence policy design."
Barbara Butrica and Cori Uccello provide an overview of baby boomers' economic prospects in "How Will Boomers Fare at Retirement?." They demonstrate that while boomers' wealth at retirement will be higher than for previous generations, boomers' retirement incomes will be lower in relation to their pre-retirement incomes, and a larger share of retirees will have less income than needed. Causes include variations in lifetime earnings, savings, and pension coverage.
"Changing Demographics of the Retired Population," by Karen E. Smith and Eric Toder, illustrates how the shares of retirees who are minority group members, divorced, and never-married will increase over time. Because these groups are historically at higher risk of poverty, the need for a robust social safety net will remain high.
Toder, in "What Will Happen to Poverty Rates among Older Americans in the Future and Why?," discusses how economic growth will reduce poverty rates over time, but notes that a larger share of retirees will be relatively poor compared to prevailing living standards. Higher divorce rates and the increase in the Social Security retirement age contribute to higher relative poverty among the elderly.
The series also discusses individual, private sector, and political responses that could shore up retirees' economic security. In "Working Longer to Enhance Retirement Security," Richard Johnson explains how delaying retirement "would expand the pool of productive workers and promote economic growth," as well as "increase lifetime earnings and retirement savings for workers, improving their financial security at older ages." For example, by retiring at 70 instead of 62, a typical unmarried man could almost double his annual income at age 75.
In "Lifetime Patterns of Voluntary Employee Pension Contributions," Karen Smith writes "sound retirement planning increasingly depends on the commitment of individuals to invest in tax-deferred retirement accounts throughout their working lives." Using new data, she explains how workers' contributions to employer-sponsored plans vary greatly from year to year, which can make it hard to build a secure retirement nest egg.
In a brief to be released soon, Gordon Mermin examines how eliminating the Social Security deficit by indexing the growth of initial retirement benefits by prices instead of wages will affect different groups of retirees. "Reforming Social Security through Price and Progressive Price Indexing" shows that wage indexing for the bottom 30 percent of earners while price indexing for the rest protects lower-income retirees, though over time it could significantly reduce Social Security's share of retirement income for middle-income Americans.
In another forthcoming brief, "Women and Social Security," Melissa Favreault notes that the current Social Security system is highly favorable to women in general, but favors nonworking spouses over working women with the same household income. Even so, women, especially if unmarried, are at greater risk of poverty in retirement than men. Favreault shows how changes in the benefit structure can reduce Social Security costs while protecting women who most need support.
Older Americans' Economic Security is part of the Urban Institute's Retirement Project, established to assess how current and proposed retirement policies, demographic trends, and private-sector practices affect the well-being of older Americans and the economy. For more information on the project, visit http://www.urban.org/retirement.
The Urban Institute is a nonprofit, nonpartisan policy research and educational organization that examines the social, economic, and governance challenges facing the nation.
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