NCPA - National Center for Policy Analysis

Is There a Retirement Crisis?

November 28, 2011

Aging middle-class Americans worry about retirement, and for good reason.  With the Social Security fund running gradual deficits, change will have to occur in the near future, but it need not be as painful as some have predicted, says Nicole Gelinas, the Searle Freedom Trust Fellow at the Manhattan Institute.

  • Because of the immense size of this baby boom generation, the number of senior citizens will more than double between now and 2050, from 40 million to 89 million.
  • Meanwhile, the Social Security fund, which currently contains $2.6 trillion, is set to be depleted by 2037.
  • The 2010 Census shows that, across the board, retirees are delaying their exit from the workforce in order to work longer and receive greater benefits -- this figure has increased to 20 percent from 17 percent in the mid-1980s.

One of the primary concerns, going forward, is that so many near-term retirees will have insufficient funds to last for their entire retirement.  In order to increase their wealth as much as possible in the years leading up to the recent recession, the two strategies of workers were to invest in stocks and houses.  However, both of these investment sources have yielded poor returns over the course of the post-recession years.  Furthermore, in order to fund these investments, many borrowed from banks.  Yet while their assets have taken a large hit from the plummeting stock market and housing prices, their debts have remained significant.

  • The recent recession eliminated $6.1 trillion of Americans' wealth.
  • Younger boomers managed, on the eve of the financial crisis, to amass an average net worth of $184,900 while older boomers had $254,100.
  • When their stock and house values crashed but their massive debt remained, younger boomers' average wealth contracted to $145,400 while older boomers saw their wealth shrink to $214,800.

To remove pressure on the Social Security system to care for all of the nation's retirees, lawmakers should remove barriers to private investment.  Removing caps on workers' giving to their 401(k) plans and removing capital gains tax for low-income workers would both help in this process.

Source: Nicole Gelinas, "Is There a Retirement Crisis?" City Journal, Fall 2011.

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