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A failing retirement system

It's well known that many aging boomers haven't saved enough for retirement. For instance, the consultants at McKinsey & Co. estimate the average couple will be some $250,000 short of what they need when they say goodbye to their workmates for the last time. At this point it's unrealistic to expect the solution lies with saving more.

Instead, boomers are going to have to work longer. A paycheck has a greater effect on living standards than increasing retirement contributions from 15% of earnings to 25%, for example. Working into the retirement years allows savings to keep compounding and Social Security benefits to increase in value.

Problem is, the latest study by the Employee Benefits Research Institute shows that even if a worker delays his or her retirement age into their 80s "there is still a chance the household will be 'at risk' of running short of money in retirement."

The odds of making it improve however, if you keep on working and contributing to a retirement savings plan into your late 70s and early 80s, according to The Impact of Deferring Retirement Age on Retirement Income Adequacy.

"Our research finds that many people may have to delay retirement far beyond age 65 to increase the probability that they have enough money to cover their retirement expenses at a comfortable level," said Jack VanDerhei, EBRI's research director and co-author of the report. "What really makes a positive difference, we found, is if people who continue to work after 65 also continue to contribute to a defined contribution retirement plan."

It's wrong. America's retirement system--from Social Security to the 401(k)--isn't doing the job. Yet much of the current discussion in Washington is about cutting back on retirement security, not improving it. How many people can realistically work into their late 70s and early 80s and sock money away into a retirement savings plan--even as they're expected to pay more for their medical care?

The report emphasizes the risks of falling short are greatest for low-income and moderate-income households. These are often people with health issues that prevent them from working well into the traditional retirement years, too.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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