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Is There a Retirement Crisis?

Last update on: Dec 23 2019
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A couple of economists recently published a report arguing that the media and a number of economists overstate the problems Americans will have being financially ready for retirement. They questions several assumptions in their estimates and make some different assumptions in their study. In this link, you can read a summary of their report and some of the criticisms of it. Resolution of the controversy hinges on how people spend money in retirement and in the years just before. I’ve long believed that many of the studies funded or prepared by financial services company overstate retirement spending and funding needs, because those firms have an incentive to encourage you to save more. Of course, that doesn’t mean most people will save enough to finance the lifestyles they want, and it’s possible the studies overestimating the needs actually discourage people from even trying. While these debates are of some interest to government policymakers, all that matters to you is the lifestyle you want and the amount you accumulate to meet that goal.

Part of the discrepancy owes to diverging definitions of “retirement ready.” Pang and Schieber have relatively modest goals. For them, a successful retirement–that is, one that does not contribute to a “crisis”–is one that permits a similar lifestyle to the working years, but with no added luxuries. They also don’t build a margin of safety into their calculations. Bernstein, being more conservative by nature, aims higher. He writes, “You might be able to get along on as little as 60% of your preretirement income, especially if you are a saver. Just don’t get sick, travel, or want to educate your grandkids.”

The rest owes to sundry differences in expected returns on investment assets, the rate at which retirement monies can be annuitized, and so forth. In addition, Bernstein assumes larger long-term health-care costs than do Pang and Schieber.

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