Issues 2020: Are Americans Prepared for Retirement?

NEW YORK, NY — Contrary to opinions espoused by the media and politicians that Americans are in worse financial retirement shape than previous generations, a new report by Manhattan Institute (MI) senior fellow Allison Schrager argues that Americans have never been better prepared for retirement.

Part of MI’s Issues 2020 series, “Are Americans Prepared for Retirement?”, explains that while in the past only a small minority of Americans benefitted from retirement plans—mostly in the form of defined benefit pensions—today more than half of households participate in a retirement plan, most of them defined contribution plans like 401(k)s. As the first generation who relies on these plans reaches retirement, they have more retirement income than previous generations, and elderly poverty stands at an all-time low.

Therefore, current arguments to expand social security are misguided, says Schrager. The social security program was never intended to be the sole source of retirement income, and it is already generous and responsible for a large share of future projected deficits.  

Just some of Schrager’s findings include:

Looking across all sources of income (including Social Security, retirement plans, and other forms of savings), most retirees are doing better than before.

• The research estimates that 70-year-olds in 2011 had more income than they did in 2000. This is true across the income spectrum.

Defined contribution plans, such as a 401(k), have made most Americans better off.

• The median balance among 61–69-year-olds with defined contribution plans is $150,000.

Only about 20% of Americans rely exclusively on Social Security

• Most of them are low-income earners who get a high replacement rate because of the program’s benefit formula.

The value of defined benefit pensions can be overstated.

• While income from defined benefit plans can be more generous than defined contribution plans—receiving a significant benefit requires long tenure at a single organization, which has become less common.

Having the government provide enough risk-free income to finance most Americans’ entire retirement is expensive, unnecessary, and implausible in the current fiscal environment, argues Schrager. She advises that any resources we have available would be much better spent on the low-income elderly such as subsidies for the purchase of private, long-term-care insurance or tax incentives to encourage more annuity purchases.

About Issues 2020

TheIssues 2020 series applies the Manhattan Institute’s breadth and depth of expertise on major issuesof national public policy to the key arguments and proposals of the 2020 presidential campaign. MI scholars identify where the central claims driving key debates reflect fundamental misunderstandings about what is happening in America. With succinct explanations of what the data show, they provide a much-needed corrective and a solid foundation for political debates about the nation’s future. Click here to read more.