America's retirement crisis has reached epic proportions, according to a recent study by Boston College's Center for Retirement Research. The study estimates that the current retirement income deficit, or the gap between the retirement savings of U.S. households and what they need to have in order to maintain their living standards past retirement, is a whopping $6.6 trillion -- five times the projected federal deficit for 2010.
"The key sources of income retirees are relying on are either under attack, in the case of Social Security, or disappearing, in the case of traditional pensions," said Ross Eisenbrey, vice president of the Economic Policy Institute, at a press conference on Wednesday. "The early Boomers are better off than the late Boomers, and God help the poor Gen Xers. Seventy percent of them are on a track that leads to a fallen standard of living in retirement."
According to the latest retirement income data, half of 65-and-older households have an annual income of less than $29,744 -- about half the median income of younger households. Traditional pensions are disappearing in favor of 401(k) plans, which allow employers to shift much of the cost and all of the risk to their employees, and on top of this, Congress is considering cutting Social Security to balance the federal budget.
Maria Freese, director of government relations for the National Committee to Preserve Social Security and Medicare, said that the $6.6 trillion estimated retirement deficit is a "conservative number" and that the crisis could become far worse if Social Security is compromised.
"There's an old saying that goes, 'When you're trying to get out of a hole, the first thing you have to do is stop digging.' The last thing you want to do is to buy a bigger shovel, and that is unfortunately what we see happening with many policy makers here today in Washington," Freese said. "Instead of exploring ways to strengthen Social Security and improve our private pension system, the only discussion we hear these days are the various ways Congress could cut Social Security, and presumably they're hoping nobody notices."
President Obama has appointed a National Committee on Fiscal Responsibility and Reform to look into various ways to reduce the national deficit, including possible cuts to Social Security, despite the fact that Social Security has not contributed a dime to the federal deficit. Eisenbrey warned that future generations planning on collecting Social Security will be in trouble even without the proposed cuts to the program.
"Social Security, our one nearly universal pension plan, is scheduled to replace a much smaller share of pre-retirement income in the future than it has in the past," he said. "That's without the fiscal commission or Congress doing anything more. An average earner who retired at 65 in 2002 gets benefits that replace 39 percent of his pre-retirement income. By 2030, this will fall to 28 percent due to a higher normal retirement age, higher medicare deductions, and income taxes levied on Social Security benefits."
Political action group Retirement USA announced the retirement income deficit Wednesday morning as part of "Wake Up, Washington!" month, a speak-out on retirement security that will run from September 15 to October 15, 2010. Organizers of the event hope to call the attention of voters and policy makers to the magnitude of America's retirement crisis before elections in November.
"The number should be a wake-up call," Freese said.