Muhlenkamp: How Retirement Has Changed—Why Saving More and Working Longer will be Necessary
If you are trying to fund a retirement
lifestyle that roughly equals what you
were spending during your working
years, personal savings play a crucial
role. Prior to Social Security and
Corporate Plans, personal savings
and assets were the sole source of
“retirement” income. For most people,
these assets were insufficient to allow
them to live on their own—they lived
with their kids.During the 1950s and ‘60s, the
personal savings rate averaged 10-12%
of disposable income. As people came
to trust Social Security and pension
plans, the rate dropped to 2-3%.
Emphasis on personal savings was
renewed in 1974 with the introduction
of Individual Retirement Accounts
(IRAs).Today, personal savings (as a
percentage of disposable income) is on
the order of 4-5%.
2. Social Security was signed into.. This succeeded until the 1970s, when double-digit inflation crippled the majority of defined benefit pension plans. Over time, retirees’ purchasing power was cut in half, spurring negotiations to double their pension amounts. As a repercussion, pension plans were suddenly 50% underfunded. Additionally, productivity gains took effect (e.g. we produce the same tons of steel as we did in 1960 with one-tenth of the manpower), squeezing workerto-retiree ratios