to rely on housing wealth to finance retirement consumption. In addition, many households enter retirement still holding a mortgage (Webb, 2009); this subjects them to additional pressure to generate adequate retirement assets to cover mortgage payments, and it also increases the illiquidity of housing for purposes of releasing equity.9 Younger households, however, have benefited from the increased affordability of housing, and their prospects for accumulating equity in new homes purchased may be better than in recent years, when prices were inflated.


Analysts have offered a variety of explanations for why many people fail to save enough for retirement. One economic argument is that public policy has engendered moral hazard, so that many may look to government programs—Social Security, Medicare, and, in some cases, Medicaid—to take care of them after they retire (Gruber, 2009). Especially for lifetime low-income workers, support provided by such government programs can represent a significant percentage of income before retirement and also make it possible to mostly maintain the same lifestyle postretirement. Because Social Security is often presented as a publicly managed DB retirement program financed by lifetime worker contributions, many wrongly assume that there is no need for them to devote anything more to retirement saving. So while Social Security was initially conceived of as an insurance program (Scheiber and Shoven, 1999), survey evidence now suggests that many expect Social Security to provide everyone with a reasonable standard of living in retirement (Greenwald et al., 2010).10

Moreover, public policy in certain areas may have counteracted retirement policy. For example, when lifetime lower-income and middle-income households do save, they can find themselves subject to means-testing of Social Security payments (through the tax on benefits). Moreover, they may also be rendered ineligible for assistance through the Medicaid program as


9While the post-2008 decline in house prices has left many households with much lower housing equity than they expected to have, it is not clear whether this will translate into a major long-term macroeconomic effect. The committee does not believe there is evidence that housing’s contribution to personal assets or consumption is changing because of the aging of the U.S. population. It recognizes that some have speculated that the value of housing will decline because of demographic-related shifts in household composition, but there is no clear evidence to allow forecasts of such a diminution of value.

10It is also possible that some Americans save little in the expectation that their children will take care of them. Many baby boomers have heavily invested in their children’s education, and they may now be looking for that investment to pay off. Currently, much of the care received by the frail elderly population is informal, usually provided by adult daughters (Johnson, Toohey, and Wiener, 2007). Whether this will continue in the future, given the trend toward smaller and more split families, is unclear.

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