In today’s Wall Street Journal I “debate” Alicia Munnell of the Center for Retirement Research on whether Americans face a “crisis” of inadequate retirement saving. I think both sides make good points and readers will have to judge for themselves.
But I think a graphic featured in the story makes some of my point for me. The right-hand side of the graphic shows the Center for Retirement Research’s estimates of the percentage of households who are at risk of an inadequate retirement income. The left-hand side shows total retirement savings as a percentage of GDP, from the Federal Reserve’s flow of funds database.
But here’s the thing: only one of these two charts shows data. The Fed figures are based on tabulations of balances in IRA, 401(k) and other savings accounts, along with the benefits accrued by participants in defined benefit pension plans. These show that retirement savings have roughly tripled as a percentage of GDP since 401(k)s were introduced in 1979.
The right-hand figure isn’t data. It’s the CRR’s interpretation of how many households have inadequate retirement savings, based both upon data (mostly from the Survey of Consumer Finances) and the CRR’s interpretation of what counts as an adequate retirement income.
So to make these figures consistent, the CRR has to hold that there are other factors that more than offset a tripling of retirement savings. I talk about some of these factors in this National Affairs article from 2014, but the short story is that I don’t buy it. Sure, life spans have gone up a bit and the Social Security retirement age has increased by a year. But Americans are also retiring 2 years later than they used to. And again, there’s that tripling of retirement savings.
Maybe Americans still aren’t saving enough, even if they’re saving more than they used to. I doubt it, given that most current retirees say that they’re doing just fine. But still, I think it’s hard to make the case that tomorrow’s retirees will be significantly worse off than today’s are.Read more!