A presentation for the

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Retirement Readiness What Americans Do and Dont
Know about Retirement

• A presentation for the
• National Press Foundation
• June 10, 2008
• Barbara D. Bovbjerg
• Director
• Education, Workforce, and Income Security

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Economic Security in Retirement

• Adequate retirement income
• Social Security
• Pensions
• Savings
• Earnings from continued employment (e.g.,
  part-time)
• Affordable health care
• Medicare
• Retiree health care
• Long-term care (a hybrid)

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Elderly Households Source of Income
Source Income of the Population 55 or Older,
2004 (Washington, D.C. SSA, Office of Research
and statistics, 2006).
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Percentage of Elderly Households Receiving Each
Type of Income
Source Income of the Population 55 or Older,
2004 (Washington, D.C. SSA, Office of Research
and statistics, 2006).
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Three Stages of the Retirement Process

• Preparation For Retirement (accumulation phase)
• Decision to Retire when should one leave the
  labor market and to what degree (full or partial
  retirement)
• Spending Down During Retirement (decumulation
  phase)

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Preparation for Retirement Social Security
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Social Security and Medicares Hospital
Insurance Trust Funds Face Cash Deficits
Billions of 2008 dollars
Social Securitycash deficit 2017
Medicare HIcash deficit2008
Source GAO analysis of data from the Office of
the Chief Actuary, Social Security Administration
and Office of the Actuary, Centers for Medicare
and Medicaid Services. Note Projections based
on the intermediate assumptions of the 2008
Trustees Reports. The CPI is used to adjust from
current to constant dollars.
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Potential Fiscal Outcomes Under Baseline Extended
Revenues and Composition of Spending as a Share
of GDP
Revenue
Source GAOs April 2008 analysis. Notes In
addition to the expiration of tax cuts, revenue
as a share of GDP increases through 2018 mainly
due to (1) real bracket creep, (2) more taxpayers
becoming subject to the AMT, and (3) increased
revenue from tax-deferred retirement accounts.
After 2018, revenue as a share of GDP is held
constantimplicitly assuming that action is taken
to offset increased revenue from real bracket
creep, the AMT, and tax-deferred retirement
accounts.
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Life Expectancy at Age 65
Years
Source Felicitie C. Bell and Michael L. Miller,
Life Tables for the United States Social
Security Area 1900-2100, Actuarial Study No.
120, http//www.ssa.gov/OACT/NOTES/as120/TOC.html.
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Fertility Rate Hovers Around the Replacement Rate
Thousands of births per thousand women
Source U.S. Census Bureau, Statistical Abstract
of the United States 2008 (127th Edition)
Washington, DC, 2007 http//www.census.gov/statab
/www/, table No. 82. Note The total fertility
rate is the number of births that 1,000 women
would have in their lifetime if, at each year of
age, they experienced the birth rates occurring
in the specified year.
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Aged Population as a Share of Total U.S.
Population Continues to Grow
Percent of total population aged 65 and over
Source Office of the Chief Actuary, Social
Security Administration. Note Projections based
on the intermediate assumptions of the 2008
Trustees Reports.
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Preparation for Retirement Pensions and Savings
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Since 1985, The Number of DC Plans Have Increased
While the Number of DB Plans Have Decreased
Source U.S. Department of Labor
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As DB Plan Participation Has Fallen, DC Plan
Participation Has Grown
Source U.S. Department of Labor
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Annual Saving Required for a35-Year Old, with
Social Security
Required Contribution Percentage of Gross Income
Female
Male
Source GAO analysis, based on Social Security
Administration data. Note The chart shows the
percentage of gross salary 35-year old male and
female earning an average wage in 2008 would need
to withhold so that the individual would
accumulate funds sufficient, along with scheduled
social security benefits, to provide retirement
income equal to 75 of his or her pre-retirement
income. The projections are based on economic
assumptions from the 2008 Social Security
Trustees Report for inflation (2.8), real wage
growth (1.1), real interest rate (2.9), and
nominal interest rate (5.7).
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Median DC Balances, By Age Group
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Falling Personal Saving Rate
Percentage of disposable personal income
Source Bureau of Economic Analysis.
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Decision to Retire
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Federal Retirement Age-Related Rules
Sources GAO (analysis) Art Explosion (images).
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Average Effective Retirement Age Has Been
Decreasing
Source OECD analysis of Census Bureau
data. Note This is a 5-year moving average based
on labor force participation data in the Current
Population Survey. For each 5-year period ending
in the year shown in the figure, the effective
age of retirement corresponds to the average age
of exit for all labor force participants
initially aged 40 and over who were no longer in
the labor force 5 years later.
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Why Older Americans Dont Work Longer

• Cultural Expectation to Retire in mid-60s and
  Mixed Signals from Federal Policy
• Older Americans Perceive Few Employment
  Opportunities
• Most Employers Do Not Make a Special Effort to
  Hire and Retain Older Workers

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Mixed Signals from Federal Policy

• Social Security early retirement age is 62
• Many private pensions have similar or lower
  eligibility ages
• Medicare eligibility age is 65

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Older Americans Perceive Few Employment
Opportunities

• Few older workers felt they had opportunities for
  partial retirement
• Most older workers and retirees saw low wage, low
  skilled jobs as their primary employment
  opportunities

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Special Effort is Not Made to Hire or Retain
Older Workers

• Many employers say they are willing to implement
  policies to recruit and retain older workers, but
  few have actually done so
• Employers cite barriers, such as federal pension
  regulations, to flexible employment options for
  older workers

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Labor Force Participation Has Been Increasing
Labor force participation rate
Source United States Bureau of Labor Statistics,
Labor Force Statistics from the Current
Population Survey, http//www.bls.gov/data/
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Spending Down During Retirement
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Most Retirees Received Annuities, But Direct
Rollovers Increasing
Percent of retirees who received benefit payoutsa
Note For our analysis, retirees with pensions
are survey respondents who reported leaving a
preceding-wave job to retire and reported
receiving a pension payout from that job. Figures
in subcategories should not be added because some
respondents report receiving multiple pension
payouts. aIncludes respondents who received
pension benefit payouts from both DB and DC
plans. bFor retirees with DB plans, includes
respondents who expect to receive benefits in the
future. For those with DC plans, includes
respondents who reported leaving their assets in
a plan account.
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Factors Affecting Payout Options Offered and/or
Elected

• Worker preferences for the type of plan they want
  and/or how they receive benefits
• Lack of consumer knowledge and understanding
  about annuitization and key risks they will face
  in retirement

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Importance of Information and Education

• Helping participants to understand longevity risk
  and the importance of saving
• Helping participants/retirees understand
  financial risks that they will face in retirement
  
• Helping participants understand annuities
• Strategies/advice for managing retirement income
  during retirement

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Government Can Help GAO Recommendations

• Provide Financial Education/Information
• assist in evaluation of financial literacy
  programs by serving as an information
  clearinghouse, setting some standardized
  benchmarks, and helping nonprofits build an
  evaluation infrastructure.
• Encourage Working Longer
• consider changes to laws, programs, and policies
  that support retirement security, including
  retirement ages, in order to provide a set of
  signals that work in tandem to encourage work at
  older ages.

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Government Can Help GAO Recommendations

• Bolster the Pension System
• Require all sponsors of participant-directed
  plans to disclose fee information of 401(k)
  investment options to participants in a way that
  facilitates comparison among the options.
• Look for ways to encourage employer-sponsored
  IRAs

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Government Can Help GAO Recommendations

• Reform Social Security In choosing among
  proposals, policymakers should consider three
  basic criteria
• the extent to which the proposal achieves
  sustainable solvency and how the proposal would
  affect the economy and the federal budget
• the balance struck between the twin goals of
  individual equity (rates of return on individual
  contributions) and income adequacy (level and
  certainty of benefits) and
• how readily such changes could be implemented,
  administered, and explained to the public.

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Retirement Income Issues for the Newly Elected
Officials

• Social Security!!! Were running out of time
• Address the cost of health care
• Take measures to enhance pension saving and
  security
• Encourage people to work later in life, and
  employers to hire/retain them

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Contact Us
Barbara D. Bovbjerg Director, Education
Workforce, and Income Security Issues bovbjergb_at_ga
o.gov www.gao.gov