Who Is Ready for Retirement, How Ready, and How Can We Know?

Recent literature on retirement income adequacy among boomers is examined in this AARP Public Policy Institute Issue Paper by Sophie Korczyk of Analytical Services, Inc. She identifies and examines three types of studies: replacement rates (calculated by dividing income in retirement by pretirement income), intergenerational comparisons, and forecasts of savings and wealth adequacy. The paper underscores the impact of marital status and education level on standard of living in retirement. It concludes that the news is generally good for boomers in terms of retirement income, but that most of the studies do not take into account the risks that retirees face, including risks related to investment, longevity, and health care costs and needs.

Highlights include:

• Studies comparing the baby boom generation with previous generations find that most baby boomers can expect to do better on many measures of well-being than their parents, though income inequality is projected to increase.
• Single people (including those widowed, divorced, and never married) can expect replacement rates comparable to those of married couples. However, when the standard is altered to meeting their changing needs as they age, the median single person is almost certain to outlive his or her resources.
• Some public policy implications include the need for improved financial education to help workers prepare for and manage their own retirement, the need for employers to hire and retain older workers, and the need to encourage older workers to work longer.

(49 pages)