Financial Security for Older Americans
Increased life spans, the impending retirement of the baby-boom generation, and the effects of the recent economic downturn on retirement savings, have all added to the challenge of providing retirement security for older Americans.
Providing financial security for older households in the United States has traditionally been a shared responsibility of government, employers, and individual workers. However, increased life spans and the impending retirement of the baby-boom generation have resulted in major policy and administrative challenges to the federal government in the short-term and long-term management of this responsibility. High unemployment and slow market recovery in the wake of the recent economic downturn have put added strain on efforts to provide financial security for older households. While the recession has affected all age groups, older adultsparticularly those close to or in retirementmay face a greater burden because they may not have the same opportunities to recover from its effects.
Figure 1: Average Income by Source for Older Households in the Lowest, Middle, and Highest of Five Income Groups
Source: GAO and SSA analysis of 2008 income data from the March 2009 U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplement.
As a result, the need for options and strategies to help individuals ensure financial security for themselves and their families as they enter their retirement years has become even more important than in the past. For example:
- The financial shortfall facing Social Security. Although the Social Security trust funds are not expected to be depleted until sometime after 2030, the strains on government finances have already begun, with Social Security paying out more than it takes in each year. It will be important for policymakers to take the steps necessary to achieve the desired balance between income adequacy and individual equity, while also moving toward program solvency.
- The declining security of employer-provided pension plans. Participation in employer-sponsored pension plans hovers at about half of the total private-sector labor force, despite tax incentives and initiatives such as automatic enrollment and automatic IRAs. Policymakers will need to consider how to best encourage expanded pension coverage, adequate and secure pension benefits, and more effective use of tax preferences to foster workers retirement security.
- The growing responsibility for individuals to plan and manage their retirement. Ensuring the financial literacy of older people has become particularly important given the transition to a financial account-based retirement system, the increasing responsibility of individuals to manage their assets in retirement, and understand key factors that can affect their retirement income. Policymakers will need to examine the effectiveness of services and protections provided to individuals at older ages.
Figure 2: Hypothetical Projection of Monthly Retirement Income for a 65-Year-Old 401(k) Plan Participant
To see the effect that various factors can have on retirement income from three main spend-down options, see the interactive retirement model available at http://gao.gov/multimedia/GAO-14-9/interactive_chart/summary.