NCPA - National Center for Policy Analysis

Are American Retirees Facing a Crisis?

October 2, 2014

Politicians across the country are claiming that Americans are facing a retirement crisis, with estimates of retirement unpreparedness ranging from 53 percent to 84 percent of Americans. As a result, many lawmakers have called for more Social Security benefits, as well as for limits on the tax incentives aimed at encouraging private retirement plans (insisting that the plans have failed).  

But Andrew Biggs, resident scholar at the American Enterprise Institute, and Sylvester Schieber, independent pension consultant, write in the Wall Street Journal that the "retirement crisis" is wildly overstated. Consider:

  • The Organization for Economic Cooperation and Development determined in 2013 that the average American retiree has an income equivalent to 92 percent of the typical American income. That figure was much higher than those in other countries (81 percent in Scandinavian nations, 85 percent in Germany and 77 percent in Belgium).
  • American retirement incomes are the second highest in the world and 53 percent above the average OECD retirement income.
  • American retirees tend to have a higher standard of living than they did during their working years. In 2012, the median 67-year-old had an income that exceeded his average earnings during his career.

In the future, this trend should actually improve, according to Biggs and Scieber, as the typical American born between 1966 and 1975 is expected to have a retirement income that is 110 percent of his average working earnings (higher than the 109 percent level of those born during the Depression), with retirees using IRAs and 401(k)s more to fund their retirement.

Increasing Social Security benefits, they say, is not the answer. As public pension systems become more generous, retirees tend to collect less income for other sources (work and their own savings). In fact, OECD data indicates that an additional dollar of public pension benefits leads to 94 cents less in income from personal savings or a person's employment, with negative implications for economic growth.

Source: Andrew G. Biggs and Sylvester J. Schieber, "The Imaginary Retirement-Income Crisis," Wall Street Journal, September 30, 2014.


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