Warnings of an Upcoming Retirement Crisis in the U.S.
Man and son enjoy retirement on a beach together. Source: Experian
“In the richest country in the history of the world, a secure and dignified retirement should be available to every American, not just the extreme wealthy.”
On February 28, Senator Bernie Sanders warned Congress of a retirement crisis for Americans with unlivable incomes, the rise of poverty, and a lack of government support for the elderly.
Many older Americans are financially vulnerable, with over half living on incomes of $30,000 or less a year. When people don’t make enough money in order to save, retirement could be out of the question.
Over half of individuals in the United States over the age of 65 and 56% of those living in low-income households will not be able to maintain pre-retirement living standards.
A retirement crisis may have even more looming effects on the economy, especially because the labor force is widely affected by retirement. This has the potential to disorient the employment pattern for the United States.
Additionally, limiting retirement to only those who can afford it may have the potential to widen the economic social gap in the United States. When retirement becomes inaccessible, people in lower economic classes are not able to enjoy the relaxation that comes with time off of work.
But even worse, some people won’t be able to generate enough income to afford basic necessities such as running water or shelter, especially as health and stamina in individuals begins to decline with age. These workers might not be able to work as efficiently or as many hours as they need in order to afford even a basic lifestyle.
Struggles with how to address retirement are not completely new to the United States economy. For example, the government began monitoring pensions and retirement more after the stock market crashed in 2000.
In response to the crisis, the government transitioned away from defined-benefit pensions toward defined-contribution plans. A defined-benefit plan includes pensions, where people receive a certain payment upon retirement. On the other hand, a defined-contribution plan involving a 401(k) or IRA allows the individual to choose how much money to pay for retirement, which can be difficult for individuals with little or no financial experience to manage.
The United States is one of the wealthiest nations in the world, with a high quality of life and GDP per capita. However, the United States has not been very successful with retirement plans. On the Mercer CFA Institute Global Pension Index, the United States got a C+ and on the Natixis Investment Managers 2021 Global Retirement Index, America placed 17th.
The wage gap and wealth distribution problems could lead to a retirement crisis. It might even have the potential to create larger issues for the quality of life for people living below the suggested living standard in the United States.
If the United States is to begin combatting the looming retirement crisis, they must begin evaluating their retirement strategy.
The average Social Security check in 2024 is only about $1,911 per month, which doesn’t meet the requirement of pre-retirement standards of living for many individuals. In order to begin to shift away from retirement problems, the federal government must do more to increase pensions and promote social security to have higher quality services attached, especially with assistance for planning retirement.
Specifically, increasing Social Security stimulus checks, raising pensions, and setting up automatic retirement accounts for citizens might help offset some financial worries, especially as prices increase and inflation continues to rise.
Retirement in the United States is a lot more than relaxing by the pool, golfing, and taking time to read a book. It carries an important role in keeping the labor force balanced and the United States economy afloat. Without federal government intervention, the crisis will continue to take place, and retirement will continue to become unattainable for many Americans.