An Aging Society Does Not Necessarily Mean Steep Declines in Saving
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The traditional lifecycle model predicts that people will save during their working years and then spend down their wealth gradually after retirement. But a RAND study conducted for AARP found just the opposite, namely, that people continue to save after retirement. The reasons include: reduced consumption, a desire to leave bequests, and an uncertain life expectancy that makes retirees wary of digging too deeply into their capital.
Researchers at the Urban Institute used a forecasting model to project that an aging U.S. population would actually result in increased savings decades from now.35 This is partly because today’s older workers, those aged 45 to 64, are more highly educated than their predecessors. With the higher earnings typically associated with higher levels of education, today’s older Americans should be better equipped to save money.
While the poverty rate for Americans over 62 has declined remarkably, the probability of being poor in old age remains quite high. Disturbingly, there is a 4 in 10 chance that an American will be poor at some time in his or her life after the age of 60.
This trend is encouraging, of course, and partly explains why old age is no longer as synonymous with low income as it once was. As important as educational attainment is in enhancing the economic security of older people, the main reason for the drop in poverty among older people is the expansion of retirement benefits, particularly Social Security.
For all this, older Americans as a whole are not uniformly prosperous or well-off. For while most Americans aged 50 and older have experienced rising income and asset levels over the past ten years, the disparities between the "haves" and the "have-nots" are highly evident.36 The gap has become greater both in terms of income and wealth. Unfortunately, women, minorities, and people living alone are far more likely to be poor, regardless of their age. While the poverty rate for Americans over age 62 has declined remarkably, the probability of being poor in old age remains quite high. There is a four in ten chance that an American will be poor at some time in his or her life after the age of 60.37
In short, retirement can be comfortable and enjoyable for those fortunate enough to enjoy the support of four strong financial pillars, Social Security, savings/pensions, health insurance, and, if they choose to continue working, their own earnings. Those in the top income quartile can look forward to retirement knowing they are financially prepared for it. For those in the middle two quartiles, continued strengthening of Social Security and Medicare benefits will be critical to their ability to maintain their standard of living. For those in the lowest quartile, the ability to continue earning something, if only from part-time work, and the availability of safety-net programs such as Medicaid will be even more vital to the future—particularly as health care costs continue to escalate.