Almost half of retirees won't have enough income by 2090

The percentage of retirees who don’t have enough income to get by is projected to increase by 73% before the end of the century, barring major reforms to Social Security and changes to work and savings habits.

That is according to findings of a report this week by the Urban Institute, which calculates that about 45% of retirees will have income of less than 75% of working-years earnings by 2090, up from about 26% in 2020. That research, funded by the TIAA Institute, models changes to income based on policy changes, extended working years and increases in savings habits.

The dramatic increase in the percentage of people projected to have too little income in retirement assumes no changes to the current system, whereby the Social Security trust funds are depleted by 2035. By that year, Social Security will be able to cover about 80% of benefits, the authors noted.

“Structural reforms to this system could include strengthening work incentives, bolstering private retirement saving, and ensuring better financial security for low-income seniors and disabled individuals,” the report read.

A proposal by the Bipartisan Policy Center, which aims to keep the Social Security system solvent — half through benefits cuts and half through tax increases — would improve retirement income in the future, but potentially not by enough for many workers, according to the report. Further, working past the traditional retirement age of 65 has the effects of delaying Social Security claiming and increasing lifetime earnings, which leads to higher benefits in retirement, the authors noted.

“Many people who end up experiencing poverty in retirement do so because they work relatively few years, often because they have poor health, face caregiving responsibilities or are immigrants with limited years of covered earnings,” the report stated. “Policies that encourage more work or more saving by themselves will likely leave these vulnerable groups with inadequate retirement income. But … well-targeted Social Security minimum benefits and enhanced Supplemental Security Income can help fill this gap.”

The average gap in annual retirement income for people in 2065 is projected to be more than $13,000, in 2018 dollars, according to the report.

“To fill this gap, vulnerable workers would need to save about $272,700 more on average to close their income gap for 20 to 25 years of expected retirement,” the authors wrote. “The savings gap is higher for high lifetime earners than for low lifetime earners because high lifetime earners have a higher absolute income standard and Social Security replaces a lower share of their preretirement earnings.”

In one of the most effective scenarios, the Bipartisan Policy Center’s proposed reforms for Social Security would be coupled with a 10% increase in retirement saving, which would lead to the average 62-year-old having more than $9,000 in additional income in 2065. By comparison, that reform, paired with an additional two years in the workforce, would lead to an additional $4,000 in income, according to the paper.

Working longer is associated with a decline in birth rates, which leads to more demand in the workforce later in life, the authors noted.

“More years of work produce more income; greater private savings as people save more and draw down their assets for fewer years; fewer years of dependence on government; and greater Social Security, Medicare and income tax revenue that can support higher annual and lifetime benefits at any tax rate,” the paper stated.

There are numerous proposals to expand retirement savings, and some states have implemented automatic-IRA systems for private-sector workers. That, along with wider use of automatic enrollment and improved retirement-plan features in recent years, could improve retirement savings.

“Additional saving incentives for low-income workers, such as refundable tax credits or government saving matches, could help boost retirement savings,” the report noted.