Benefits

Middle Class Could Face Inadequate Resources

January 16, 2013 (PLANSPONSOR.com) – Workers today are less likely than previous generations to keep up the standard of living from their working years in retirement, research found.

By PLANSPONSOR staff editors@plansponsor.com | January 16, 2013
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The AARP study “What Are the Retirement Prospects of Middle-Class Americans?” gives a snapshot of the retirement prospects of workers age 25 to 54, particularly those in the middle class.

Using The Urban Institute’s Dynamic Simulation of Income Model, the study’s authors, Barbara Butrica and Mikki Waid, project that workers today are less likely than their parents or grandparents to enjoy the living standards of their working years when they retire. Much of the projected decline is expected because health care costs are rising faster than wages.

Employee contributions to workplace health insurance and retirement plans have reduced take-home pay. Skyrocketing health care costs and college tuitions have further strained family budgets. The recession and ongoing financial crisis, which eliminated millions of jobs and wiped out trillions of dollars in household wealth, have tightened the squeeze on middle-class families and cast a shadow on the future retirement prospects of today’s workers.

The study gives the following statistics about the incomes of future retirees:

  • Future retirees are predicted to have only slightly more retirement income than today’s retirees. Median retirement income is projected to be $34,500 (in 2012 dollars) for future retirees, a 20% increase from current retirees.
  • Medical expenses will wipe out the small retirement income gains for future retirees. When out-of-pocket medical expenses are taken into account, the median retirement income of future retirees (at age 70), net of health expenses, is expected to be about $27,000—the same as that of current retirees.

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