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The percentage of retirees who do not have enough income to fend for themselves is expected to increase by 73% by the end of the century, barring major social security reforms and changes in work and savings habits.

That’s according to the findings of a report released this week by the Urban Institute, which calculates that about 45% of retirees will have an income below 75% of earnings from working years by 2090, up from around 26%. in 2020. This research, funded by the TIAA Institute, models income changes as a function of policy shifts, extended working years and increased savings habits.

The dramatic increase in the percentage of people who are expected to have insufficient income in retirement does not imply any change to the current system, whereby Social Security trust funds run out by 2035. By this year, Social Security will be able to cover around 80% of the benefits, the authors note.

“Structural reforms of this system could include strengthening work incentives, strengthening private retirement savings and better financial security for low-income seniors and people with disabilities,” the report said.

A proposal from the Bipartisan Policy Center, which aims to keep the social security system solvent – half through benefit cuts and half through tax increases – would improve retirement incomes in the future, but potentially not enough for many workers, according to the report. In addition, working beyond the traditional retirement age of 65 has the effect of delaying social security claims and increasing lifetime earnings, resulting in higher retirement benefits, have noted the authors.

“Many people who end up living in poverty in retirement do so because they work relatively few years, often because they have poor health, need to care for their children or they are immigrants with years of limited covered income, ”the report says. “Policies that encourage more work or more savings on their own are likely to leave these vulnerable groups with insufficient retirement income. But… well-targeted minimum social security benefits and improved supplementary security income can help fill this gap.

The average annual retirement income gap for people in 2065 is expected to be more than $ 13,000, in 2018 dollars, according to the report.

“To close this gap, vulnerable workers would need to save about $ 272,700 more on average to close their income gap during 20 to 25 years of planned retirement,” the authors wrote. “The savings gap is higher for high lifetime incomes than for low lifetime incomes because high lifetime incomes have a higher absolute income level and social security replaces a smaller share of their income. before retirement. “

In one of the most effective scenarios, the reforms proposed by the Bipartisan Policy Center for social security would be coupled with a 10% increase in retirement savings, which would lead to the average 62-year-old having more than $ 9,000 in additional income in 2065. In comparison, this reform, associated with two additional years in the labor market, would result in additional income of $ 4,000, according to the newspaper.

Working longer is associated with lower birth rates, leading to increased demand for labor later in life, the authors noted.

“More years of work produce more income; more private savings because people save more and withdraw their assets for fewer years; fewer years of dependence on the government; and greater social security, health insurance and income tax revenues that can support higher annual and lifetime benefits at any tax rate, ”the document said.

There are many proposals to expand retirement savings, and some states have implemented automatic IRA systems for private sector workers. This, combined with a wider use of automatic enrollment and improvements in pension plan features in recent years, could improve retirement savings.

“Additional savings incentives for low-income workers, such as refundable tax credits or government savings matching, could help boost retirement savings,” the report notes.

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Julio V. Miller

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