Social Security, Pensions Leave Two-Thirds of Retirees in Good Shape

November 23, 2005 ( - A new research paper concludes that most Americans retiring today with both Social Security and pension income are in good fiscal shape, with most able to enjoy 65% to 75% of the income earned during their working lives.

In fact, that’s the situation with about two thirds of all American households, asserted authors Alicia Munnell and Mauricio Soto at the Center for Retirement Research atBoston College, in the research paper. Concluded the authors: ” The central finding that emerges from this analysis is that the majority of households retiring today are in pretty good shape. “

The Munnell and Soto paper represents the second in a series of releases from the Center for Retirement Research with the first focusing on how much Social Security contributes to a retiree’s retirement income (See Measuring Income From Social Security ). T he finding was that Social Security benefits on average replace about 44% for both couples and single individuals.

Meanwhile, the latest release adds pensions to the picture and again determined how much of a person’s working income they will be able to enjoy after retirement – a measure referred to as “replacement rate.” According to the study:

  • c ouples with pensions represent 55% of Americans
  • couples without pensions were 25%
  • singles with pensions were 9%
  • singles without pensions 11%

According to Munnell and Soto, adding pension income to the analysis produces a replacement rate of 63% for couples and 70% for single people using the career average measure of pre-retirement earnings, and 52% for couples

and 56% for singles using the best five out of ten salary years as the denominator. The study assumed that people purchase an actuarially fair annuity with their accumulated wealth, and adding the annuitized value of financial assets outside pensions boost these numbers further, the study said.

However, Munnell and Soto offered cautions about their conclusion:

  • One-third of households does not have pensions and does not fare well.
  • The replacement rates are reported for newly retired workers and will decline over time as inflation erodes the real value of pension income.
  • T he calculations assume that people buy an actuarially fair annuity. This assumption produces the maximum income stream, but does not reflect actual behavior.
  • The current situation represents the “golden age” of retirement income. “The landscape is changing for the coming wave of baby boom retirees, who will see lower replacement rates from Social Security and less certain income from employer pensions,” the authors wrote.

Th e study is here .