Will Living Standards Decline for Future Retirees?

The financial challenges facing the next generation of retirees are well known. Social Security’s full retirement age, which had been 65 since the program started paying benefits in 1940, increased to 66 for those now reaching retirement and will rise to 67 for those born after 1959, cutting payments for all new beneficiaries. Employer-sponsored defined-benefit (DB) pension plans, which guarantee retirees a lifetime stream of cash benefits, have largely been supplanted by defined-contribution (DC) retirement plans, such as 401(k) accounts.

The newer DC plans generate substantial retirement income only if workers choose to make significant contributions to their accounts each pay period, invest the funds prudently, resist the temptation to dip into their accounts before they retire, and manage their funds wisely after they retire. As people live longer, their retirement savings must last longer. But wages for the majority of male workers have stagnated over the past few decades, leaving fewer financial resources that can be set aside for retirement.

The Urban Institute