Retirement Isn’t Always Fair
More than half of older Americans with the lowest socioeconomic status can expect to face an income gap if they retire when they’re planning to.
That finding is from a study by the Center for Retirement Research, which supports this blog. The researchers quantified and compared the gaps in the retirement preparedness of more than 3,000 older U.S. households, grouped by four levels of educational attainment.
First, the researchers estimated the target income that each working household will need in retirement to maintain its current standard of living. That target income will be less than its current income from working, because retirees no longer need to save money, and they pay less in taxes. Then, the researchers projected the income each household will actually have – at each different retirement age – from their Social Security, employer retirement plans, regular savings, and home equity.
When a household’s projected income reaches the target, that’s the age at which they can expect to retire comfortably.
But people don’t necessarily make decisions that are in their best financial interest. Indeed, 54 percent of those in the least-educated group will face an income gap if they retire when they said they’re planning to, compared with just 36 percent of the best-educated group.
Retirement experts, including economists at this Center, urge baby boomers to hold on and work just a few more years to improve their retirement finances. But less-educated older workers often have physically demanding jobs or poorer health, making this very challenging, or even impossible.
“It may well be,” the researchers conclude, “that their retirement shortfalls cannot be bridged by working longer and other solutions will be needed.”
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