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Institute for Workplace Studies----------------- Professor Samuel B. Bacharach

School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies

Cornell University

16 East 34th Street, 4th floor---------------------- Stuart Basefsky

New York, NY 10016 -------------------------------Director, IWS News Bureau

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AARP Public Policy Institute

 

WHAT ARE THE RETIREMENT PROSPECTS OF MIDDLE-CLASS AMERICANS? [January 2013]

http://www.aarp.org/content/dam/aarp/research/public_policy_institute/security/2013/retirement-prospects-middle-class-AARP-ppi-sec.pdf

[full-text, 39 pages]

 

[excerpt]

This study attempts to fill that research gap by assessing the retirement prospects of today’s working-age middle-class population using the Urban Institute’s DYNASIM3 model. We evaluate the income sources and economic security of future retirees based on several measures, including income comparisons to current retirees, ability to maintain the living standards of their working years, and poverty rates. Because escalating health care costs are particularly critical to retirement security, our projections compare the economic security measures before and after deducting MOOP expenditures—illustrating how modest projected improvements in income could easily be eliminated by anticipated increases in health care costs. Finally, we compare retirement outcomes for a variety of subgroups by income level, age cohort, educational attainment, race/ethnicity, and gender/marital status.

 

Table of Contents

Executive Summary ........................................................................................................ 1

Introduction ..................................................................................................................... 3

Methods ........................................................................................................................... 4

Measuring Income ...................................................................................................4

Health Care Spending ..............................................................................................4

Results ............................................................................................................................. 5

Who Are Middle-Class Americans? ........................................................................5

On What Sources of Income Will Future Retirees Rely? ........................................6

Data Highlights ........................................................................................... 6

Benchmarks for Measuring Middle-Class Security .................................................9

Health Care Costs ..................................................................................................10

How the Middle Class Will Fare in Retirement: Median Income .........................12

Data Highlights ......................................................................................... 12

Current Retirees vs. Future Retirees ......................................................... 13

Demographic Characteristics .................................................................... 14

Age Cohorts .............................................................................................. 14

How the Middle Class Will Fare in Retirement: Poverty Rates ............................14

Data Highlights ......................................................................................... 14

Before Medical Costs ................................................................................ 16

After Medical Costs .................................................................................. 17

How the Middle Class Will Fare in Retirement: Replacement Rates ....................18

Data Highlights ......................................................................................... 18

Before Medical Costs ................................................................................ 19

After Medical Costs .................................................................................. 21

How the Middle Class Will Fare in Retirement: Keeping up with Future Middle-Class Standards of Living .........................................................................21

Data Highlights ......................................................................................... 21

Before Medical Costs ................................................................................ 22

After Medical Costs .................................................................................. 22

How the Middle Class Will Fare in Retirement: Economic Mobility ...................24

Data Highlights ......................................................................................... 24

Conclusions ................................................................................................................... 25

Appendix ........................................................................................................................ 27

DYNASIM3 ...........................................................................................................27

Projecting Health Care Spending ...........................................................................28

Projecting Pensions ................................................................................................28

Projecting Retirement Accounts ............................................................................30

Projecting Financial Assets ....................................................................................31

Asset Income ..........................................................................................................31

 

 

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