In October 2007, she also became the first boomer to sign up to receive Social Security payments – and another 78 million of her peers are set to follow.

Baby boomers are Americans born 1946 to 1964, a period defined by a sudden 50% increase in births over the previous generation. In spite of low savings and heavy debt, they are the wealthiest cohort in US history, with an average worth of $389,494. Yet, a report by International Pensions reveals that as many as two-thirds of baby boomer households are financially unprepared for retirement due to inadequate savings, rising health care costs, income and wealth inequality, and a slowing economy.

PROVIDING A STATISTICAL SNAPSHOT, the report depicts a US pension landscape with $17.3 trillion of assets at the end of 2007 and this is projected to grow to between $25.5 and $36 trillion by 2020. Although great weight is attached to personal responsibility, and Social Security benefits are only modest, according to the report the sheer size of the retiring baby boomer generation will burden the system. The projected worker-per-beneficiary ratio is expected to drop significantly from around 3.2 today to only 2.2 in 2030. Additionally, as the distribution is heavily skewed to the top 5% (average $1.3 million), many baby boomers face a less than secure future. This is even more pronounced among different socio-economic groups. White baby boomers have a median worth of $200,000, seven times larger than their black counterparts and three times larger than Hispanic baby boomers.

When measured by such factors as public expenditures, legal retirement age and the strength of funded supplementary pensions, the US is under less pressure to reform its pension system than other countries. Yet, major concerns remain the low coverage of second- and third-pillar pensions and the Social Security financing basis. Findings in the report indicate that sustainability can only be ensured by decreasing benefits or increasing Social Security taxes, or through a combination of both.

ONE KEY TREND HIGHLIGHTED in the report is a move toward less generous benefits. For the half of the US workforce that participates in no form of employer-sponsored pension plan, reduced benefits will have serious implications. Another trend shows sponsors opting for more flexible, less costly hybrid or defined contribution (DC) plans. A decline in DB benefits means future retirees can no longer depend on a guaranteed income in old age. What is more, the shift to individual pension plans, such as individual retirement accounts, places capital markets and longevity risks squarely on the shoulders of individuals. In conclusion, the report questions if many employees have the financial savvy necessary to for making such crucial, lifestyle-defining decisions.

FROM A MACRO PERSPECTIVE the US has the largest, most developed funded pension market in the world. Yet, on a micro level, as the population ages, there is a widening gap in wealth distribution. Piecemeal pension coverage and the risks involved with relying on individual pensions will challenge policy-makers as the peers of Casey-Kirschling flood the system.

Published by PROJECT M in June 2009