Women and their retirement income: will it be enough?

• Author: Borzi, Phyllis C.

Much media attention has been focused recently on the need to improve dramatically the savings habits of Americans. According to the Department of Commerce, the U.S. savings rate in the 1990s has averaged about 2 percent, well below the level of most other industrial countries in the world. If one were to ignore, for purposes of calculating that rate, the group savings that occurs in public- and private-sector pension plans, the U.S. national savings rate would be negative.

It is not surprising that the key to economic security for the future can be found in the long-term retirement savings generated by working Americans and their employers. Since the average American spends 18 years in retirement, it is critical that retirement savings be adequate to enable working men and women to spend their retirement years in relative comfort, free from economic anxiety.

In a poll conducted by The New York Times/CBS News in March 1995, however, three out of four people surveyed think that people their age will face a financial crisis when they retire. More than one-half of today's workers admit that they have not begun to save for retirement. Yet the vast majority of Americans are confident that they themselves will be secure in retirement.(1)

Is this confidence misplaced? Many pension experts think so.

Today's workers are not likely to be as secure in retirement as today's retirees. For those covered under Social Security, the impending financial difficulties of the system are likely to result in lower income-replacement rates in the future and more scaled-back cost-of-living adjustments. Because of the financial pressures facing public- and private-sector employers, employer-sponsored pensions are not likely to make up the slack. And since consumption, not saving, drives the lifestyles of most American families, it is unlikely that most of today's workers will come to retirement with substantial amounts of individual savings to supplement their pensions.

Financial security in the future is a particularly elusive goal for women. In 1990, nearly three-quarters of elderly individuals with incomes below poverty were women. Today one in four women over age 65 lives in or near poverty. In fact, the median income from all sources for females age 65 and above in 1991 was $8,436.(2)

For many years, the image of a three-legged stool has been used to illustrate the primary sources of retirement income. The first leg is Social Security; the second, employer-sponsored pensions; and the third, individual savings. As a theoretical matter, the three-legged stool may have been a good framework for discussion, since it conveys the critically important message that no one should rely on any single source to assure an adequate retirement income.

Increasingly, however, Americans are coming to realize that a reality check is in order. Instead of projecting an image of security as it has in the past, the three-legged stool that awaits today's workers in retirement clearly needs some shoring up. For many workers, particularly women, one or more of the legs is far too wobbly and unreliable to carry much weight. And for some workers, particularly those employed by state and local governments, one leg (Social Security) may be completely missing.

Social Security

All private-sector workers are covered...