The first wave of baby boomers (born between 1946 and 1964) became eligible for Social Security early retirement benefits in 2008. At the time there were concerns about how the boomers' retirement would strain the nation's retirement and health systems. In addition, concerns were also raised about the possibility for boomers to sell off large amounts of financial assets in retirement, with relatively fewer younger U.S. workers available to purchase these assets.
The Comptroller General's conducted an evaluation on his own initiative as part of the continued effort to assist Congress in addressing these issues in 2006.
Their analysis of data on current retirees' saving and investment behaviour revealed that most retirees slowly spend down their assets in retirement, with many continuing to accumulate assets. They found that other factors mitigated against a sharp and sudden decline in asset prices include the 19-year span over which boomers will reach retirement age, the extended life expectancy of boomers, and the expected increase in boomer employment past traditional retirement ages, which would facilitate additional asset accumulation and reduce the need to sell assets to provide retirement income. Finally, to the extent that boomers are less reluctant than prior generations to treat their homes as a source of retirement income through such strategies as reverse mortgages, they may also depend less heavily on selling their financial assets for income.
They also found that while the baby boom retirement is not likely to cause a sharp decline in asset prices or returns, the retirement security of boomers and future generations will likely depend increasingly on individual savings and the returns these savings can earn. The decline in traditional DB pensions that provide income for life and their replacement with account-based defined contribution (DC) plans means that fewer boomers will have a dependable income during retirement other than that from Social Security.
However, fiscal uncertainties about Social Security's solvency may result in reduced future benefits for certain age groups and income levels, thereby placing more responsibility for saving on individuals. Collectively, these trends would increase the dependence of individuals on rates of return to accumulate enough financial assets at retirement and to produce sufficient income from their assets during retirement. Given the need for individuals to rely increasingly on their ability to manage their own accumulation and spending of assets and savings, financial literacy will likely play an ever-important role in the retirement security of baby boomers and future generations.
The report also found that older Americans are expected to comprise a larger share of the population, live longer, and spend more years in retirement than previous generations. The share of the U.S. population age 65 and older is projected to increase from 12.4 percent in 2000 to 19.6 percent in 2030 and continue to grow through 2050.
At the same time, life expectancy is increasing. By 2020, men and women reaching age 65 are expected to live another 17 or 20 years, respectively. Finally, falling fertility rates are contributing to the increasing share of the elderly population. In the 1960s, the fertility rate was an average of three children per woman. Since the 1970s, the fertility rate has hovered around two children per woman, meaning relatively fewer future workers are being born to replace retirees. The combination of these trends is expected to significantly increase the elderly dependency ratio-the number of people aged 65 and over in relation to the number of people aged 15 to 64. In 1950, there was 1-person aged 65 or over for every 8 people aged 15 to 64. By 2000, the elderly dependency ratio had risen to 1-person aged 65 for every 5 people of traditional working age, and by 2050 this ratio is projected to rise further to about 1 elderly to every 3 working-age people Consequently, relatively fewer workers will be supporting those receiving Social Security and Medicare benefits, which play an important role in helping older Americans meet their retirement needs.
While it is interesting to read the past, it is also important to understand that governments were aware of the issues that we face in retirement today and did little to fix them.
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