Executive Summary

There has been much concern about people approaching age 65 being less prepared for retirement than those from earlier generations. Selected indicators in this report show that, overall, people nearing age 65 today are at least as prepared for retirement as the same age group was 10 or 20 years ago. Two measures that suggest the current cohort is in fact better prepared are education and labor force participation. First, people aged 55–64 are more likely to have at least some college education and less likely to have less than a high school education compared to previous cohorts. Higher levels of education are typically associated with higher incomes. Second, women are more likely to be in the labor force. Over the past four decades, labor force participation rates for all women, but especially those aged 55–61, have risen dramatically.

Because more women are working today than ever before, they are now able to contribute to their own pension plans, earn eligibility for Social Security worker benefits (disability benefits as well as retired worker benefits), acquire their own health insurance, and build their own net worth. This is a crucial development for the women who are entering retirement without a spouse to provide for them.

There are some measures that indicate increasing risks for those approaching retirement. Although median net worth remained fairly stable in the last 10 years, this reflects slightly increased home equity while the value of other financial holdings has declined. Also over the past 10 years, median household income declined for women in the middle income group after rising during the previous decade. Over the past 20 years, the largest increase in median household income has been for men and women in the high income groups.

The increase in women’s Social Security worker benefits and increase in pension coverage is positive. Potentially undermining these developments is the shift to more defined contribution pension plans. Women now face the same risks as men relying on pension income that is based on investment success over a lifetime, rather than guaranteed coverage from defined benefit plans. The Government Accountability Office (2006) recently highlighted risks from increased reliance on investments, the solvency issues connected with Social Security and Medicare, and the increases in health care costs.

There has also been a decreasing prevalence of marriage and rising prevalence of divorce. This change reduces the availability of spousal caregivers later in life. Increasing longevity and life expectancy also increase the likelihood of needing long-term care and the risk of exhausting financial resources. Although the number of Americans with long-term care insurance is rising, the percentage of people aged 55–64 who have coverage from these policies is still small and strongly related to educational attainment.

It is not possible to definitively indicate how well people approaching age 65 will fare in retirement compared to previous generations because of the dramatic changes that have occurred and the possibility of unknown future changes. Overall, people nearing retirement in 2004 are better educated and have higher median household incomes than the same age group did 20 years ago. However, people with lower levels of education and those in lower income categories have not seen the same gains as people with college educations and those in higher income categories. And while the increased labor force participation rates of women over the past 20 years have allowed more women to earn their own Social Security benefits, health insurance, and pensions, women continue to be disproportionately disadvantaged in preparing for retirement compared to men.