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Working for Retirement Security

September 8, 2008

Summary

Over the past 50 years, Americans have enjoyed steadily increasing life spans, and they have also been retiring earlier. The combined effect of these two trends is that the average American worker today can now be expected to spend 50 percent more time in retirement than a similar worker 50 years ago. Experts project life spans will continue to increase.

As a result, the amount of income that must be put aside to fund workers’ retirement must grow. Funding retirement is becoming more expensive for individual workers and for our public retirement systems, and the expense is growing to the point where it is putting strains on the ability of workers and society to bear it. Under our retirement systems that depend on workers and/or firms putting aside earnings during the working years to fund retirement income, the period of accumulation is getting shorter while the payout period is getting longer. Under our Social Security system, which uses the contributions of today’s workers to pay today’s retirees, the declining number of workers relative to retirees raises costs directly.

Although the need to set aside income has grown, many workers have not been accumulating
enough savings in their personal or retirement accounts. Rapidly rising health care costs also consume a growing share of earnings and retirement incomes. Experts project these costs will continue to rise faster than national income. Social Security benefits, the major source of income in retirement for most workers, are on track to replace a smaller share of pre-retirement income (about 4 percent less) as the normal retirement age rises to 67, owing to reforms enacted in 1983. Most individuals choose to receive the earliest yet smallest Social Security benefit available to them. The long-term financing imbalances in Social Security remain an unresolved issue.

For some share of our population, economic security in retirement is at risk. The problem is greater for widows and single women, who on average live longer than men, and tend to accumulate fewer savings and earn lower Social Security benefits.