to dominate the pattern of capital market returns in the coming years. Compared to these broader forces, the effects of U.S. population aging on rates of return are likely to be very small. Though major changes in asset prices have occurred and are likely to occur in the future, demographic forces are generally too predictable and move too slowly to cause major financial market dislocations such as those of the 2007–2009 period.

Overall Adequacy of Consumption in Retirement Years

Studies of U.S. retirement saving adequacy produce different answers depending on the methods used, with research suggesting that between one-fifth and two-thirds of the older population have undersaved for retirement (see Chapter 7). Some common themes emerge. First, there is good evidence indicating that low- and lower-middle-income households accumulate few financial and pension assets for retirement. For those households, Social Security, Medicare, and Medicaid are a central part of maintaining retirement living standards. To the extent that benefits paid by these government programs might be reduced in the future, the living standards of the affected retiree households will fall.

Second, the quality of financial decisions, and therefore financial literacy, will play an increasingly important role in how well households fare in their retirement years, particularly in light of the continued trend to DC pensions. Households will need to decide how much more to save and how to structure their portfolios during their working years. They will need to decide when it is economically prudent to retire, taking into account personal, macroeconomic, and political uncertainties. When they do retire, they will need to decide whether to annuitize their accumulations and, if so, how much and with what annuity options. The many households whose wealth rests mainly in their home ownership will need to decide whether and how to use those assets to finance retirement consumption. These are very complicated questions, and financial professionals give varying advice. The committee is concerned that our nation is poorly prepared to move into this changed financial landscape, and it finds substantial value in boosting financial literacy.

The committee concludes that Americans are likely to face greater economic difficulties in retirement than they did in the recent past. Retirement insecurity and saving inadequacy are likely to increase rather than recede, and these will be exacerbated by the need to navigate a more complex financial and macroeconomic structure.11

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11It is useful to note that the meaning of retirement has changed over time, and that what might be regarded today as a problem or potential problem (e.g., too extended a retirement, too much retirement consumption, and difficult financial choices in old age) evolved from



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