Retirement should be comfortable for American baby-boomers

Today's senior citizens enjoy a "golden age of retirement security." Yet the median income of individuals aged 65 and over last year was just $15,199 (Dh55827) in the United States.

For many, those two sentences may sound contradictory. Living on 15 grand a year does not sound like a flush American living standard.

Of course, many retirees own their homes outright and aren't paying a mortgage anymore. But they are still paying property taxes, maintenance and utilities.

Baby boomers will soon face retirement. Considering economist Mauricio Soto's description of today's retirement scene as "golden age". Will it be worse for them?

Perhaps not. The real income of baby-boom retirees — those born between 1946 and 1965 — probably will be higher.

Two researchers at the Urban Institute in Washington, predict that median household income (usually couples, not just an individual) will increase from $36,000 now to $50,000 among early and late boomers in the 2013-2032 period. Moreover, the poverty rate at age 67 will drop from 8 per cent today to 4 per cent among early boomers and to 2 per cent among late boomers, say researchers Barbara Butrica and Cori Uccello.

Boomers will benefit from a long-term trend in the United States for wages to grow faster than prices — a change that should boost living

But many boomer retirees may feel poorer compared with those who are still working. Those retiring nowadays have an income of about 86 per cent of their income before retirement. That "median replacement rate" will drop to 80 per cent for late boomers, those born after 1956, the study finds. And 46 per cent will have less than three-quarters of their preretirement income, compared with 42 per cent today.

Because Congress has been considering changes in Social Security and in laws governing pensions and retirement savings plans, two experts at the Congressional Research Service (CRS) thought it relevant to look at the income of older Americans today. They exposed a high degree of dependence on state support.

That being the case, Congress has been cautious in dealing with proposals to partly privatise Social Security or trim the indexing of pensions to the inflation rate.

With a mid-term election ahead, most observers doubt Congress will make such changes this year or next.

Poverty remains high for women, minorities, the less educated, and those over 80, according to CRS's Debra Whitman and Patrick Purcell. As for the future, several factors could trim retiree incomes. Social Security benefits are already being cut by gradually raising the normal retirement age to 67 by 2019, notes Soto of the Centre for Retirement Research at Boston College.

Furthermore, a bigger chunk of Social Security income will be taxed by Uncle Sam. Medicare premiums, which are deducted from Social Security pensions, will rise.

Another problem is that traditional corporate pensions are rapidly shrinking in number; some are shrinking in value as well.

Many companies instead offer 401(k) plans. In general, 401(k)s are cheaper for corporations. Employees should, but often don't, contribute adequate sums toward their own retirement. The employee also assumes the investment risks.

Many future retirees will either have no private pension or a smaller one.

Nonetheless, if productivity and living standards rise (as most economists assume they will), and if stock market investments do pay off (as they have in the past), future retirees will make out all right."

Future retirees are not likely to be so secure," says Soto. "But they will have enough resources at retirement to do well."

On average, that is. Divorced women, never-married men, Hispanics, high school dropouts, those not eligible for Social Security, and the working poor could still face financially grim retirements, the experts note.