Everyone, relax. There is no retirement savings “crisis,” and you’re probably saving enough for retirement.
That’s the message in a recent op-ed in The Wall Street Journal, and a working paper from the American Enterprise Institute’s Andrew Biggs, a frequent critic of what he says are sensationalized reports in the consumer and financial press of widespread poverty in retirement.
In the paper, entitled "Replacement Rates and the Retirement Crisis," Biggs, former principal deputy commissioner of the Social Security Administration (SSA), argued that it’s really all a matter of “keeping up with the Joneses.” If having enough money in retirement is defined as maintaining one’s own pre-retirement standard of living, then Americans are generally doing just fine.
However, if it’s defined as a standard of living that rises with the wages of other workers in the labor force at the time the individual retires, it gets trickier.
Yet, only the former accurately measures retirement income adequacy, Biggs claimed.
“The Social Security Administration’s projections of a significant decline in median retirement income replacement rates and increase in the share of seniors with low replacement rates is entirely driven by the assumption that seniors desire an income that rises along with national average wages,” he wrote. “If retirees are instead assumed to desire an income that allows for a similar standard of living that they enjoyed before retirement, a standard that is more consistent with financial planning and the life cycle hypothesis in economics, retirement income adequacy is found to improve in future decades.”
And it appears that the questions policymakers and legislators use to make “retirement adequacy assumptions” might be all wrong.
“Our judgment of future seniors’ retirement income adequacy depends not upon answering the question ‘How much?’ but rather ‘How much is enough?’” Biggs noted. “That is, whether we think Americans face a retirement crisis or an improvement in their retirement income adequacy depends less on what we think about how much we’re saving for retirement and more on how much we think households need to save for retirement.”
A lack of retirement plan coverage in the workplace and fear of Social Security insolvency continue to cause concern, yet Biggs frequently argues most Americans will have enough income to sustain them throughout retirement.
“It’s easy to make the data dance to a particular tune if that is the analyst’s desire,” Biggs wrote in the Journal op-ed before referencing analysis from the Investment Company Institute’s Peter Brady. “A more nuanced picture of the U.S. retirement system shows that while it isn’t perfect, most Americans who need to be saving for retirement are doing so.”