Retirement in America has become a tale of two very different realities in the decade now drawing to a close. A robust economic rebound has put some Americans back on solid footing for retirement, but progress has been uneven. Despite the gains made in employment, wage growth has only recently begun to recover—and remained flat for older workers. Retirement wealth has accumulated almost exclusively among higher-income households, while middle- and lower-income households have only held steady or lost ground, Federal Reserve data shows. Trends in Social Security and Medicare also are troubling. The value of Social Security benefits—measured by the share of pre-retirement income they replace—is falling, and the cost of Medicare is rising.
Just 52 percent of American households owned retirement accounts in 2016, according to Federal Reserve data, not much changed from 2010, when that figure stood at 50 percent. Racial gaps in account ownership are especially pronounced—58 percent of white households owned retirement accounts in 2016, compared with just 33.6 percent of black households and 27.8 percent of Latino households. Among households that had workplace retirement plans, the gains have been substantial. Average account balances jumped 22 percent from 2006 to 2018, according to Vanguard data.
This year, 9.4 percent of adults ages 50 to 64 were uninsured, a decline from 14 percent in 2010, according to the Commonwealth Fund. This year, 61 million Americans are enrolled in Medicare, 33 percent more than in 2010. Program spending will be $749 billion, up 47 percent compared with 2010. And an aging population means there are just 2.9 workers contributing to the system for every Medicare enrollee this year, down from 3.4 in 2010, according to a Kaiser Family Foundation analysis of Medicare data.
Social Security remains the linchpin of retirement security for most Americans 10 years after the crash—but the value of benefits has fallen during this decade, and will fall further in the years ahead. That has nothing to do with economic cycles. Changes enacted in 1983 are gradually pushing up the program’s full retirement age to 67 for workers born in 1960 or later. A higher retirement age acts as a benefit cut, since it raises the bar for receiving full benefits. Net benefits are shrinking further because of rising Medicare Part B premiums, which typically are deducted from benefits. What’s more, a rising number of Social Security claimants owe income taxes on at least part of their benefits. The Center for Retirement Research calculates that an average earner retiring at age 65 could expect to replace 37 percent of pre-retirement income in 2010; that dropped to 35 percent in 2018 and will fall to 29 percent in 2035.
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