The pessimist's view.
Cutting Both Ways
Friday's column featured four positive signs for U.S. retirees, taken from a presentation entitled "Retirement: Are Americans Preparing?" by Peter Brady of the Investment Company Institute. (The material is from three years back, but its numbers remain relevant, as retirement trends change only glacially.) Today's installment, also using that presentation's numbers, gives the rebuttal.
The first three rejoinders stand Friday's positives on their head. (The fourth and final item is new, but it largely follows from the previous three points.) The news about the U.S. retirement system is decidedly mixed, such that most data can support opposing viewpoints. Last column took the bright view of the numbers; this one does not.
The Bottom Is Lower
Friday's column pointed out that although Social Security is but a starting point for middle- and high-wage employees, who require considerably more income than is provided by Social Security to have an acceptable income-replacement rate during their retirements, it is close to a finishing point for low-wage workers. Per the Social Security Administration's projections, Social Security payments alone will replace about 80% of the income of very low earners (as the term is defined by the SSA).
That would seem to be a good thing--those who have the least are best served by the existing U.S. retirement structure. However, there is a flip side to the argument that Social Security payments are so generous as to almost match what the lowest-wage workers currently earn. Perhaps the situation is not that Social Security is generous, but instead that the salaries of the lowest-wage employees are markedly ungenerous. If so, then the deed rings hollow; receiving 80% of a substandard income isn't much of an achievement.
Such seems to be the case. In 1968, the U.S. minimum wage was $1.60. Adjusted for inflation, that is $11.30--far above today's federal minimum wage of $7.25. True, many states have implemented higher minimums, but save for the District of Columbia (which is not technically a state anyway, sorry fellas), none of those figures reaches $11.30. Another way to put the matter: 15 million Americans make less than $10 per hour, meaning that 15 million earn less than the lowest-wage worker from half a century ago.
For those employees, Social Security's victory would seem to be Pyrrhic indeed.
The Asset Mix Is Worse
Despite periodic talk of a retirement "crisis," the percentage of Americans with retirement assets is holding steady. That is, in 1989, among those households where the working head was aged 55 to 64, 79% had financial resources in addition to Social Security: a defined benefit plan, a 401(k) plan, an IRA account, or some combination of those three. The current figure is 81%. Of those households approaching retirement, four out of five have something.
The details, however, are less encouraging. In 1989, 55% of those pre-retirement households expected to receive defined-benefit payments, with most of that 55% possessing either 401(k) or IRA assets in addition to their pension plans. That made for pretty good protection--the assurance of guaranteed defined-benefit checks, plus in many instances also supplemental resources from tax-sheltered accounts. Today, the number of pre-retirees who expect to receive some sort of defined-benefit payments has declined to 40%.