Many Americans are anxious about their retirement prospects. In fact, a recent Gallup poll found that not having enough money for retirement is the number one financial worry among Americans. For some, this concern is justified, as they face the daunting prospect of running short of money in their later years. But there is considerable variation in preparedness for retirement, and the challenges are more complicated than many realize.
When evaluating the retirement security landscape, complexity is the one constant. Potential sources of retirement income are numerous and varied, including: continued work (perhaps on a part-time basis), Social Security benefits, drawdown of personal savings, workplace retirement plans, annuities, home equity, financial support from family members, and more. Understanding this patchwork and building a solid foundation upon which to retire is no easy task for the average American.
Additionally, even for those who do accumulate substantial resources, retirees’ incomes and living standards are subject to a variety of risks, such as poor investment choices or returns, unexpected medical bills, outliving one’s savings, and needing expensive long-term care.
The U.S. retirement landscape is difficult to describe for the “average” person because the state of any particular retiree’s finances depends so heavily on which sources of income they have, how much they have, and what life events occur that could drain their nest egg.
The Bipartisan Policy Center’s (BPC) Commission on Retirement Security and Personal Savings is examining the U.S. retirement system. Next year, the commission will make comprehensive recommendations to improve the financial security of Americans preparing for and in retirement. In advance of these recommendations, BPC staff is producing a series of white papers to highlight the retirement security challenges that public policy can address.
After a brief overview of the retirement system, this first white paper explores retirement preparedness through the lives of four fictional families, showing how they are preparing for retirement, what they could be doing better, and the risks that they will face over the course of their working years and their retirements.
Retirement Security: A Diversity of Risks
Americans have a variety of ways to prepare for retirement. Some have defined benefit pensions, while others have 401(k)s or IRAs. Most will be entitled to Social Security benefits in old age. But many Americans have no retirement plan outside of Social Security or are not preparing adequately. Saving for and managing the risks surrounding retirement security can be a daunting task, as shown by these illustrative profiles.