Urban Institute Study Finds Delayed Retirement by Poorer Boomers May Improve Retirement Finances

The Urban Institute has released a paper projecting wealth and income at retirement for low-income boomers. The findings suggest that most with low lifetime earnings will also have low incomes at older ages unless they either continue working or move in with others who help support them financially. Among other things, the report suggests that delaying retirement will improve outcomes for low-earning boomers, but will not increase retirement living standards dramatically.

In "Boomers at the Bottom: How Will Low Income Boomers Cope with Retirement, the authors Barbara Butrica, Eric Toder, and Desmond Toohey looked at the possible effects of delayed retirement, along with saving more and working more consistently over their lifetime. With respect to working longer, they projected delaying retirement by five years (from 62 to 67) and found that this would have a modest 10% increase on average lifetime earnings for purposes of calculating Social Security (rising from $11,000 to $12,100), but it would raise household income by 13% (from $10,700 to $12,100), because of the additional earnings that working generates on top of the increased income from Social Security, defined benefit plans, and retirement accounts.

Among low-lifetime-earner boomers, those with low income at age 67 have strikingly different work patterns at older ages than those with higher income at age 67. Only 15 percent of low-lifetime-earners with low-income work at age 67, and 11 percent work during retirement. In contrast, 47 percent of low-lifetime-earners with higher-income work at age 67, and 35 percent continue working after retirement. Among low-lifetime-earner boomers, low-income retirees will receive only $600, or 6 percent of their household income, from earnings, compared with %9,000, or 37 percent, for higher-income retirees.

Source: Urban Institute Research Summary (September 16, 2008)