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Rebuilding the Middle Class: A Blueprint for the Future

AARP CEO A. Barry Rand offers a plan for financial security

Rising health care costs will wipe out any gains that middle-class families were projected to attain.  Even though the poverty rate among retirees is projected to decline, that decline will be virtually wiped out by rising “out-of-pocket” medical costs, which will take an increasing share of retirement income.

Unless we build on recent reforms, future retirees — those currently age 25 to 34 — will be less likely than current retirees to maintain their standard of living in retirement.  All because of rising health care costs.

And this doesn’t even factor in the rising cost of long-term care.

And, the second reason — financial insecurity.

The middle class was hit hard by the Great Recession, especially with loss of jobs, falling home values and foreclosures and reduced savings.

Instead of creating pensions that help people maintain a decent standard of living as they get older, we’re seeing traditional or defined-benefit pension coverage erode or disappear altogether.

Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts.

Roughly half of all workers don’t have a retirement plan at all.  And, for most of those that do, the amount in their 401(k) would pay them a retirement benefit of less than $80 a month — for life.  How do you live on that?

Continuing to work will obviously be one of the key ways of maintaining security in retirement. But these trends place even more importance on Social Security as a source of retirement income.  In fact, Social  Security will be the main source of retirement income for future retirees at virtually all income levels.

And, for the nearly one-third of middle-class workers who will fall into having low incomes in retirement, Social Security will represent over 80 percent of their retirement income.

Now, I’ve talked about rising health care costs and financial insecurity, but I also want to mention a third factor — the rising cost of higher education.

Our research shows — without question — the most important contributor to middle-class stability is having a college degree or some type of postsecondary education.  It’s the gateway to the American Dream and, frankly, a key to restoring prosperity to the middle class.

The facts are clear. The median weekly income for high school graduates in 2011 was more than 40 percent less than that of those with a higher education.  Moreover, the unemployment rate for workers with just a high school diploma is over 8 percent — more than double the rate of those with postsecondary degrees.

African Americans and Latinos lag far behind whites in this respect.  Just 13 percent of Hispanics and 18 percent of African Americans age 25 and older  have a higher education — compared with 31 percent of whites.

The cost of higher education is now out of reach for many middle-class families.  And, student loan debt is a huge drain on the income of middle-class families.

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