Why American Workers’ Retirement Income Security Prospects Look
So Bleak: A Review of Recent Assessments

Abstract

Several recent assessments suggest that the majority of U.S. workers are at risk of suffering a fall in their standard of living in retirement. These assessments are often based on models that fail to reflect the way income and saving vary over workers’ life cycles. They extrapolate younger workers’ observed savings behavior into the future, ignoring workers’ capacity to boost saving after children leave home, the mortgage is paid off, and other early-life obligations have been discharged. The measurement of preretirement income and its spendable portion as an indicator of living standards in working years is often exaggerated by inappropriate indexing. This method leads to overestimates of earnings to be replaced in retirement and underestimates of the income replacement capacity of Social Security for various segments of the workforce. Although clearly some workers are not saving enough to maintain their standard of living throughout retirement, the situation is less dire than a number of studies have suggested. This general conclusion holds true even with a sensible consideration of healthcare costs.