Cuts in Medicare and housing prices may jeopardize retirement
The Baby Boom generation may face a retirement funding crisis if Medicare and Social Security are cut or if home equity cannot be utilized, a new study by Barclay’s Global Investors found.
Surprisingly, the most vulnerable group includes those in the upper income levels, the study found.
Although retirement surveys focus on savings and investments, the Barclays study shows that Social Security and home equity still account for a significant portion of retirement wealth.
Only one quarter of household wealth derives from savings and retirement benefits, while 39 percent comes from Social Security, home equity, and earned income, the study said.
“The fabric of retirement wealth is highly dependent on what people earn, their source of shelter, and expected government benefits,” the study’s authors wrote.
If there are shocks to those sources of wealth, the retirements of many Boomers could be jeopardized, they concluded.
The study looked at what would happen under Medicare “means testing,” where higher income retirees would be denied Medicare and would have to buy private insurance.
They also looked at what would happen if housing prices declined due to a mass selloff by Boomers, leaving less home equity to be consumed in retirement.
Under these scenarios middle-income to wealthy retirees would lose between 20 percent and 29 percent of their total wealth, drastically reducing their retirement income.
Potential solutions include:
- Another increase in normal retirement age for Social Security recipients;
- Nationalized healthcare;
- Automatic enrollment into 401(k) plans;
- Default investment options that force 401(k) participants into diversified investments; and
- More education on inflation risks for retirement savers.