Will Your Retirement Be Worse Than Your Parent’s Was?

The retirement landscape is changing in surprising ways

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It’s nice to think that there were good old days when grandma and grandpa retired to Florida with enough income to pay all their bills and even travel. But that idyllic retirement only existed for a minority of Americans. “The conventional wisdom that in the good old days everybody worked for one employer and got a pension and a gold watch is bunk and does not fit the history of the American nation at any point since the Indians were displaced,” says Dallas Salisbury, president and CEO of the Employee Benefit Research Institute. There never was a time when the majority of Americans had a single life-long employer either. Industrious Americans have been job hopping as long as the country has existed. “The notion that the modern baby boom age is the first time that most people have had multiple jobs is flat out false when one looks at the data,” says Salisbury, who has held 7 jobs since he graduated from college. The median job tenure of Americans peaked in 1983 at 15.3 years, but has been lower both before and since.

What has changed over the past 50 years is the method by which most employers provide retirement benefits: from traditional pensions to 401(k)s. The traditional pension system, “It was designed to give meaningful retirement income to the small minority of Americans who, like my Dad, did in fact spend a full career with one employer and left everybody else to be primarily dependent on Social Security,” says Salisbury. Under the 401(k) system, “There are going to be a whole lot fewer people who are going to have adequate retirement income, but a whole lot more people will have supplementation of Social Security at some level.”

Yet, workers with only a 401(k) feel less secure about their retirement than those with traditional pensions. While 87 percent of workers ages 50 to 64 with a traditional pension feel comfortable about their economic security for the first 5 years of their retirement, only 72 percent of those with only a 401(k) plan do, according to a Watson Wyatt survey of 2,200 full-time workers between ages 50 and 64 released last week. Both groups of workers seem to feel more pessimistic about their retirement preparedness over the long term, but employees with only a 401(k) expect to fare worse. While 50 percent of workers with traditional pensions are confident they won’t run out of money throughout 25 years of retirement, just 34 percent of 401(k) participants are confident they will have enough resources to live comfortably for 25 years.

The graying of the United States population is also contributing to the problem of funding retirement. That’s typically blamed on the aging of the gigantic baby boomer generation and longer life spans. But the primary reason for the population shift is actually the nation’s falling birth rate, according to Stephen Goss, chief demographer for the Social Security Administration. The birth rate in the United States has dropped from about 3.3 children per woman in the 1950s to about 2 children today. “The real story of the baby boom is not that it happened, it’s that is stopped.” Goss says. A decreasing birth rate means that there will be fewer workers to support retirees in the future. So, while there are now about 3.3 workers supporting every Social Security beneficiary, once the baby boomers retire there will only be two workers supporting each Social Security recipient. Or as Isabel Sawhill, a senior fellow at the Brookings Institution puts it, “Every working couple can have their own elderly person that they are supporting and they can be pen pals.”

Tell us, will your retirement be as secure as your parent’s was?