Retirement & Financial Planning Report

Availability of an employer-sponsored defined benefit annuity program such as FERS or CSRS for federal employees is one of the key drivers of retirement security, a Congressional Research Service report has said.

Households that have adequate savings for retirement or are on track to achieve it, most commonly consist of employees “with high incomes and existing retirement plans, such as those who have employer-sponsored pensions or who diligently fund their retirement plans.”

For lower-income families, “Social Security and Supplemental Security Income generally replace a substantial proportion of preretirement earned income,” noting that the Social Security benefits formula is weighted so that its benefits replace a higher percentage of preretirement income for them than for higher earners.

In the middle, “families with little or no retirement savings or retirement income beyond Social Security may not be on track for adequate retirement income. Some of those families may find saving for retirement difficult for financial reasons. Others may not be eligible to participate in an employer-sponsored retirement savings plan, making saving for retirement more challenging.”

Other key indicators of retirement insecurity, it said, include:

* Household debt. “A family with a substantial amount of outstanding mortgage debt near or in retirement may need to use retirement savings to pay mortgage expenses, thus resulting in insufficient income to meet regular expenses or health-related costs . . . Elderly people with large outstanding mortgages or other loans may need to work longer or face financial insecurity during their retirement years.”

* Lack of emergency savings. “People with little emergency savings may borrow or withdraw from retirement savings accounts to fund emergencies, thus reducing the retirement funds available to grow for the future . . . Household events, such as unexpected reductions in income or marital changes, seem to increase the likelihood of early withdrawals.”

* Employment and health uncertainty. “Layoffs and illnesses in the family are common for those over age 50. One study estimates that 66% of older workers experience an unexpected job loss or health condition hindering employment before turning 65 years old. For those who lose their jobs, older workers are likely to experience larger wage losses than their younger counterparts upon reemployment. In addition, research suggests that people with health issues may overestimate how long they can work, and often their health worsens before the age at which they plan to retire.”

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