43% of American families "headed toward years of financial struggle in retirement"

By Lee Russ

Thursday, June 15, 2006 at 05:33 PM

If you've been reading the economic stories here on WTW, you know by now that the public claims of a "red hot" economy and a growing economic pie don't match up with the gritty details--especially when it comes to retirement  Here's another of those gritty details as reported in the Baltimore Sun (emphasis added):

New study says many haven't saved enough
By Jonathan Peterson, Originally published June 9, 2006
WASHINGTON // Almost one in two American families are headed toward years of financial struggle in retirement, according to a new report that says workers are unprepared for cuts in pension and Social Security income.

The Boston College study presumes that most people need to replace 65 percent to 85 percent of their annual income in their working years to stay secure in retirement. But 43 percent of U.S. households will fall at least 10 percent short of that range, the study found, using what it said were conservative projections.

The percentage of households at risk of an insecure retirement rises to 66 percent under a less rosy set of assumptions - for example, if workers retire at age 63 instead of at 65.
...
Saying it hoped to draw attention to the issue, Boston College unveiled a new National Retirement Risk Index based on survey data from 4,500 households in the Federal Reserve's 2004 Survey of Consumer Finances. Researchers calculated that the risk index has risen from 31 percent in 1983 to 43 percent in 2004.

Baby boomers born between 1946 and 1964 are generally in better shape than members of Generation X, born between 1965 and 1972,...primarily because these younger workers face the prospect of diminished Social Security income, and fewer of them will have pensions.
...
The study is the latest addition to a growing body of research that suggests households headed by working-age adults are poorly prepared to meet their financial needs of retirement.
....

The BC report cites various factors behind the grim outlook, such as:

• Social Security will replace a smaller share of people's pre-retirement income in the future  (benefits are being taxed more, Medicare has higher  premiums, retirement age for full benefits will rise, etc.)

• Employer abandonment of costly traditional "defined benefit" pensions (you get a guranteed amount per month), in favor of "defined contribution" plans like 401(k)'s (you make a contribution, later you get whatever that contribution's actual value is at the time you withdraw it).

• Insufficient savings by retirees (as by Americans, in general; see)

• Increased cost of retirement as longevity increases, especially in the field of health care expenses.