Retirement ‘a Daunting Challenge,’ Report Says

In recent years, preparing for retirement has been an increasing burden—and one exacerbated by higher costs, says a recent report. It joins the chorus of those warning that it is hard and harder for people to save, and outlines factors explaining the more difficult climate for preparing for, and financing, retirement. 

“Retirement has long been a daunting challenge for working people,” say Tyler Bond and Dan Doonan, both of the National Institute on Retirement Security (NIRS), in “The Growing Burden of Retirement.” They add that individual workers not only face more risks, they also face rising costs after they retire. “Stepping back and viewing the entire picture of the different retirement challenges can help to understand just how much the burden has grown,” write Bond, who serves as NIRS’ Research Manager, and Doonan, who serves as its Executive Director. 

Bond and Doonan highlight a variety of factors behind the increasing challenge: 

• For many workers, it is hard to start saving early and save continuously during their working years. And many of them struggle to meet suggested retirement savings targets. 
• As they reach retirement age, workers face risks due to market timing, interest rate and longevity. “Any of these risks can derail carefully laid retirement plans and together they can make the prospect of retirement daunting,” write Bond and Doonan.
• Older Americans are the most likely to own a home; however, more of them age 65 and older have mortgage debt when they retire. 
• Health care is becoming more expensive for all Americans, but even more so for older Americans. In addition, lower-income seniors spend a high proportion of their income on health care. 
• An increasing number of older Americans need long-term care, and the costs that entails are a growing challenge for many of them. And the need for such care, Bond and Doonan observe, is projected to grow as more members of the Baby Boom generation retire.  
• Ways of financing retirement are changing. Social Security replaces less income than it used to; fewer Americans are offered a pension through their employer; and defined contribution plans shift risks from employers to workers who often are poorly equipped to handle them.

Bond and Doonan further argue that the aging of the U.S. population heightens the effects of these factors. “All of the Baby Boomers will be retirement age by 2030—these costs are projected to rise even more.” Bond and Doonan add that “systemic inequities in labor, housing and credit markets” make the situation worse.

Meeting the Challenge

Bond and Doonan note that the public and private sectors are devising ways to meet the challenges posed by the factors that make preparing for retirement difficult, such as addressing long-term care costs, creating lifetime income options and expanding Social Security. “Creative solutions exist to begin addressing these challenges,” they write.