As America ages and income inequality deepens, concerns about retirement security are mounting. A growing body of research indicates that many Americans will not be able to sustain their standard of living once they leave the workforce and taxpayers will be on the hook for $1.3 trillion in increased spending by 2040 to assist Americans without sufficient retirement savings. Moreover, public opinion research finds 79 percent of Americans agree the nation faces a retirement crisis, while 55 percent are concerned that they cannot achieve financial security in retirement.
Some voices, however, indicate that these retirement concerns are exaggerated, relying on data indicating that older Baby Boomers have largely fared well in retirement. But new research published in The Journal of Retirement finds that Late Boomers, Generation X, and Millennials face a far less secure retirement landscape.
The research, Retirement Then and Now: Shortfalls in the Retirement System Will Fail Many Future American Retirees, documents why a “don’t worry” narrative is dangerous.
In this Q&A, I discussed this new research and America’s retirement outlook with Dr. Teresa Ghilarducci, one of the research authors, a leading retirement expert, and an economist at The New School.
The research opens by acknowledging that some voices indicate the retirement “crisis” is overstated. What’s driving that pushback?
It seems some are pointing to data related to early Baby Boomers, those born in the mid-1940s, who indeed were best positioned for a secure retirement. Many early Boomers had defined benefit pensions, more stable work histories, and full Social Security benefits at age 66. When looking only at that segment, retirement for the most part, appears largely on track.
But looking at that age group alone is misleading, as later generations face a far different outlook. There are fewer pensions available to workers, Americans carry higher debt, costs are rising, and we are living longer. The conditions that made retirement work for early Boomers just don’t apply anymore.
Your research highlights the sharp decline of defined benefit pension coverage as a central factor in retirement insecurity. How big a loss is this?
It’s enormous. In the mid-20th century, pensions provided guaranteed lifetime income and shielded retirees from market swings. Our research shows that nearly 40 percent of early Boomers had a pension plan at age 55. By contrast, only about 22 percent of Generations Xers did. Losing that foundation represents a retirement wealth reduction worth well over $200,000 for a typical middle-aged worker.
What about workers’ personal savings? Are younger generations at least building up more in 401(k)s or IRAs?
For the top decile, yes. They’re accumulating substantial balances. But the majority of workers aren’t. Our analysis of the Survey of Consumer Finances shows that most households in the bottom 60 percent of the distribution have little or no retirement wealth. In fact, at age 45, Generation X households below the 60th percentile often have savings levels no higher than their Boomer counterparts at the same age.
And debt complicates matters. More than 40 percent of seniors now carry mortgages into their 60s, compared with only 25 percent in 1989. Student debt is another rising burden, with a larger share of retirement income that will be diverted to paying student loans.
Longevity is generally celebrated as a success story. But the research frames longer life spans as a double-edged sword. Why?
While increased longevity is a remarkable achievement, it also creates the need for additional years of income security. For Generation X, expected life spans are about 14 percent longer for men and 10 percent longer for women compared with early Boomers. That translates into needing 10–15 percent more savings just to maintain the same standard of living.
Unfortunately, there are two major problems with the notion that everyone can just work longer. First, the decision to retire often is not in the hands of the workers. During the Great Recession, more than half of people who retired did so involuntarily. That is a nice way of saying they were let go from their job, couldn’t find a new job, and started to rely on Social Security.
In addition, evidence shows “healthy working-life expectancy” has declined. Older workers today have fewer healthy years left on the job than similar workers two decades ago. While some argue people can just “work longer,” that option is often unrealistic.
The research also stresses medical and long-term care expenses. How do these affect the retirement outlook?
Medicare covers a large portion of medical costs, but certainly not everything. Out-of-pocket spending is projected to rise from 10 percent of older adults’ income in 2012 to 14 percent by 2030. A typical 65-year-old man needs $127,000 saved just to have a 90% chance of covering medical costs; a woman needs $143,000. Long-term care can be even more devastating, with one in ten retirees needing $100,000 or more in lifetime costs. These are expenses most middle-class families can’t easily absorb, especially when they’re already under-saved.
Let’s talk about Social Security. How important is it in terms of ensuring retirement security?
Social Security is the bedrock for retirees across income levels. But without congressional action, benefits will be cut automatically by about 20% in the mid-2030s. That would hit low-income retirees hardest and push many into poverty.
The fix isn’t complicated: raise revenue. That can mean lifting or eliminating the payroll tax cap, taxing some forms of capital income, or other approaches. The key point is that letting automatic cuts happen would be disastrous, and it is completely avoidable.
What retirement reforms does your research recommend?
One promising idea is the Retirement Security for Americans Act, introduced in 2023 with bipartisan support. It would create portable, universal retirement accounts for all workers, including part-time and gig workers—backed by federal matching contributions. Participants could annuitize their savings for guaranteed lifetime income.
We also need to address long-term care, perhaps by expanding Medicaid home and community-based services or by creating an insurance program. And healthcare reforms that cap out-of-pocket drug costs or lower Medicare’s eligibility age would make a real difference.
Some argue that since today’s retirees are doing okay, there’s no need to rush. What’s your reaction?
In a word: short-sighted. Saving for retirement is cumulative, and the solutions require early action. Delaying reforms only drives up costs and puts more Americans at risk of retirement insecurity and elder poverty. And it increases the cost of safety-net programs.
Right now, we have the opportunity to shore up Social Security, expand savings coverage, and mitigate healthcare costs. If we wait until Generation X and Millennials are fully in retirement, it will be too late.
What do you hope readers take away from your research?
We shouldn’t measure success by how early Boomers fared. We need to judge the system by whether it will work for the generations now in midlife. By that measure, the system is failing and only deliberate reform can fix it.
The debate over whether there’s a retirement crisis is more than academic. For millions of Generation Xers, Millennials, Gen Z, and future generations, it’s about whether decades of work will culminate in retirement security or retirement struggle.
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