Academic journal article Social Security Bulletin

This Is Not Your Parents' Retirement: Comparing Retirement Income across Generations

Academic journal article Social Security Bulletin

This Is Not Your Parents' Retirement: Comparing Retirement Income across Generations

Article excerpt

This article examines how retirement income at age 67 is likely to change for baby boomers and persons born in generation X (GenX) compared with current retirees. We use the Social Security Administration's Modeling Income in the Near Term (MINT) model to project retirement income and assets, poverty rates, and replacement rates for current and future retirees at age 67. We find that, in absolute terms, retirement incomes of future cohorts will increase over time, and poverty rates will fall. However, projected income gains are larger for higher than for lower socioeconomic groups, leading to increased income inequality among future retirees. Finally, because postretirement incomes are not expected to rise as much as preretirement incomes, baby boomers and GenXers are less likely to have enough postretirement income to maintain their preretirement standard of living compared with current retirees.

Selected Abbreviations

DB defined benefit

DC defined contribution

FRA full retirement age

GenX generation X

MINT Modeling Income in the Near Term

RET retirement earnings test

SIPP Survey of Income and Program Participation

SSI Supplemental Security Income

Introduction

On January 1, 2011, the first wave of baby boomers turned age 65. Because boomers have had very different life experiences than their predecessors, researchers and policymakers have speculated on the retirement income prospects of the largest birth cohort (76 million) in American history.

Earlier research by Butrica, Iams, and Smith (2007) assessed the retirement income prospects of future retirees using projections from the Social Security Administration's (SSA's) Modeling Income in the Near Term (MINT) microsimulation model. The authors outlined a number of salient trends that will impact retirement incomes for baby boomers differently than for previous generations. Those trends include the following:

* a rise in educational attainment, especially among women;

* a pronounced drop in marriage rates and coincident rise in divorce rates between 1960 and 1990;

* an increase in the immigrant and minority share of Americans;

* an increase in female labor force participation and a decline in male labor force participation;

* an increase in median earnings of women and a decline in median earnings of men;

* an increase in both earnings and family income inequality;

* a sharp decline in single-earner couples and rise in both dual-earner couples and single-headed families;

* a shift in Social Security benefits away from spouse and widow benefits toward more dual-entitlement and worker-only benefits;

* retirees' rising real incomes and falling poverty rates over the past three decades; and

* stagnant or declining real wage growth between 1970 and 1996, followed by rapid real wage growth in the mid-to-late 1990s.

Butrica, Iams, and Smith (2007) found that while future retirees were projected to have higher real incomes and lower poverty rates than current retirees, future retirees also would replace a lower share of their working years' income in retirement. Those findings were based on MINT3 projections generated in 2002. That model has been updated three times since then. Each update improves on the prior version by using more recent data, improving the projection methods, and updating economic projections based on observed historic trends. This article reassesses the retirement prospects of baby boomers using MINT6 and extends the analysis to include persons born in generation X (GenX).

What is MINT6?

MINT6 is one of a suite of microsimulation models used by SSA to estimate the income, assets, and demographic characteristics of the future retired population. As the basis for its projections, MINT6 uses data from the 2001 and 2004 Survey of Income and Program Participation (SIPP) matched to Social Security administrative earnings and benefit records through 2008. …

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