Is There a Retirement Crisis? Examining Retirement Planning in the Household and Government Sectors
By Andrew G. Biggs (American Enterprise Institute)
In response to a widespread perception that households are undersaving for retirement, policymakers have proposed expanding Social Security and establishing supplementary retirement saving plans run by state governments. But these proposals take place against a background of record-high unfunded liabilities for government-run retirement programs. If government entities have either financial or political difficulty funding their existing obligations to retirees, shifting greater retirement provision from households to government could potentially worsen existing shortfalls in broad retirement saving. This paper reviews a range of studies of the adequacy of household saving, comparing estimated dollar savings shortfalls with unfunded liabilities in Social Security, in federal employee and uniformed military pensions, and in state and local government retirement plans. Even the most pessimistic forecasts of household undersaving fall short of the most optimistic estimates of government retirement plan underfunding. It appears that, on average, households are doing at least as well in saving for retirement as governments are in funding retirement plans on households’ behalf.