Monday, May 21, 2012

Shocking Headline of the Day

May 21, 2012
Poverty Increasing Among Retirees

Growing numbers of older Americans are spending their retirement years in poverty, according to a recent Employee Benefit Research Institute study. The proportion of older people living below the poverty line has been growing steadily since 2005, and many of those people are falling into poverty as they age and spend down their savings.

What seems to be the problem?

1. Astronomical debt?
2. Low interest rates for retired savers?
3. Housing bubble?
4. Unemployment?
5. Pension fund hell?

A recent Urban Institute study predicts that poverty rates for people at age 67 are likely to decline in the future.

Well, that's certainly good news. Let's dig into the study to see if there are any notable disclaimers.

1. Projecting incomes over the next several decades involves much uncertainty, and future developments could lead to outcomes very different from our forecasts. MINT includes historic data through 2008, capturing only the early parts of the recession.

2. The unusually long unemployment spells that characterized the Great Recession could seriously scar workers who lost their jobs and lead to worse outcomes than MINT projects.

3. Furthermore, MINT calculates Social Security benefits under current law. Promised Social Security benefits may change as a result of reforms needed to address long-term solvency.

4. MINT6 projects about 7 percent lower lifetime average earnings for boomers than did MINT3 largely because of lower than expected actual growth in real wages compared with the 2002 Trustees Report assumptions used in MINT3.

5. Asset income is the most volatile component of retirement income, and the roller-coaster path of investment markets makes this a difficult source of income to project.

Ah, good. Nothing much to worry about then. What's the worst that could happen?

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