Are Retirees as Unprepared as Studies Show?

Are retirees really as unprepared as many reports have shown in recent months and years? The Boston College Center for Retirement Research set out to answer the question in a paper released last week, which examines some of the conflicting evidence around the question. 

Relying on findings from several data sources, the BCCRR finds in short, that yes, retirees in the future will be less prepared than those in the past. 

But that lack of preparedness is largely to do with consumption among households, BC’s researchers say. 

“Studies showing that households are saving optimally hinge crucially on assumptions that people are willing to accept declining consumption as they age and that they sharply reduce their consumption when the children leave home,” the paper explains. “While other studies have found consumption does not decline early in retirement, new analysis suggests that many will be unable to maintain this pace over their full retirement.”

And the findings can be used to direct policy initiates going forward, BC says, when it comes to programs such as Social Security. 

Even though households are likely to fall short in terms of retirement planning, there are ways for the government to assist, the BC report notes. 

“Such shortfalls should be taken into consideration as policymakers discuss options for reforming Social Security,” the paper says. “To bolster retirement preparedness, policymakers may want to consider ways to encourage more private saving, such as requiring 401(k)s to adopt auto-enrollment and auto-escalation policies and to apply these policies to current workers as well as new hires.”

View the paper.

Written by Elizabeth Ecker

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