Retirement Imbalances in the United

Retirement

Imbalances in the United States' Retirement System

Planning and financially preparing for retirement is, for most people, a very complex and uncertain task. Measuring the efficacy of a retirement plan before the fact can be even more so, and determining the overall retirement preparedness for an entire nation's population is pretty near impossible. First of all, there're a host of factors that are not directly quantifiable and that are significantly different for each individual: the amount that children will contribute to their parents' support, changes in lifestyle that are not economically motivated yet have significant economic effects, and other issues are not part of nationally collected statistics, and therefore it is difficult both to ascertain the general effectiveness of retirement plans as they exist in the United States, and to determine specific at-risk groups for financial difficulties in retirement. Eliminating some of these uncertain factors and focusing on what is known about the condition of the average retirement plan and the way that certain tax benefits and penalties operate in relation to retirement funds leads to some broad conclusions on these matters.

Obviously, the higher earners in United States society are in a better position for retirement. They also tend to own greater amounts of property and have larger investment outside of retirement portfolios, meaning it is likely that they have not been dependent on their work income even while working, and therefore they are somewhat outside the scope of this discussion. Higher earners also do not receive Social Security benefits, taking them out of the major government-sponsored retirement program (U.S. Dept. Of Labor 2009).

For all that it is derided, Social Security actually provides a fair amount of coverage to the average United States citizen. Justin Fox of Time notes that this average hides some other statistics, however -- even though American workers on average get 78.8% of their pre-retirement income from Social Security, most middle class workers receive only 38.8% (Fox 2009). This means that lower income workers are receiving significantly more than the average 78.8% of their pre-retirement income from Social Security, putting them in a fairly advantageous position without requiring them to contribute to other retirement funds and accounts.

Of course, lower income workers have less economic advantage during their worker lives, but when considering retirement benefits, it is necessary to measure them against one's lifetime earnings -- a successful retirement plan is that which allows one to retain the same basic lifestyle, with minimal adjustments, as they did during their working life (Fox 2009). When it comes to Social Security, this perspective quite obviously puts the middle class at a distinct disadvantage.

Other more complex regulations concerning contributions to retirement accounts create other imbalances. There are limits to the yearly contributions that can be made to individual tax-deferred retirement accounts, usually based on both absolute dollars and percentages of income (U.S. Dept. Of Labor 2009). For many of these accounts, married individuals can maintain separate accounts, in effect doubling the amount of annual contributions that can be made to retirement savings (U.S.. Dept. Of Labor 2009). At the same time, taxes are imposed on most accounts when the money is used, meaning that while large accounts still deliver more in absolute terms a larger percentage of them goes to the government eventually, which can be interpreted as a penalty for savers (U.S. Dept. Of Labor 2009).