While many believe that Americans are in terrible shape when it comes to being financially prepared for their “golden years,” new evidence indicates that the news may not be as dire as previously thought. Moving away from previous studies that focused on income replacement rates, a recent report from the RAND Corporation looks instead at consumption in retirement to gain a better understanding of what is needed for adequate preparation. This focus on consumption reflects the fact that spending during retirement is not flat; instead, it tends to decline with age for the vast majority of people, who spend less money on travel or other leisure activities, as well as less on transportation, clothes, and other regular expenses.
Using a rich data-focused approach, RAND researchers came to the conclusion that, overall, about 71 percent of individuals ages 66–69 are adequately economically prepared to retire, given expected consumption. Other key findings — with consequences for both individuals and policymakers — indicate large disparities across subsets of the population and highlight the significant contribution of Social Security to seniors’ financial preparation for retirement.
Almost Three-Fourths of Americans Are Adequately Prepared for Retirement, but Wide Gaps Exist
The RAND study, which looked at 633 single individuals and 1,092 married individuals ages 66–69, found that, over-all, approximately 71 percent were adequately economically prepared for retirement. In this assessment, “adequate preparation” requires that individuals have a 95- to 100-percent chance of dying with positive wealth and that reductions in remaining lifetime spending to achieve this be less than 10 percent.
As shown in the table below, a breakdown of the data by education, sex, and marital status exposes large disparities. For example, while over three-fourths of married individuals are adequately prepared, this is the case for only 55 percent of single individuals. And while married women tend to show higher levels of preparation than married men, single women fare considerably worse than single men. Particularly large differences emerge when splitting the sample by education: Among married individuals, some 89 percent of college graduates are prepared, compared with only 70 percent of those lacking a high school education. Among single individuals, 69 percent of college graduates are prepared, but for single individuals who did not complete high school, this number drops to only 36 percent. At the most extreme end, single women with low education (less than high school) are at a particular disadvantage: Only 29 percent are adequately prepared for retirement.
Chosen excerpts by Job Market Monitor. Read the whole story at More Americans May Be Adequately Prepared for Retirement Than Previously Thought | RAND.
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