Economic Report President

variety of reasons, including the fact that life expectancy, futureinterest rates, streams of income, and needs during retirement arehighly uncertain. Moreover, to address this question one must firstdefine what one means by “enough.” Recent studies have defined“enough” as the amount of resources that preretirees need to maintaintheir current standard of living throughout retirement. These studiestake into account the fact that the postretirement income needed tomaintain the preretirement standard of living is smaller than theamount needed prior to retirement.There is evidence that a significant share of the populationapproaching retirement are not saving enough to maintain theirpreretirement standard of living. It has been found that persons aged51-61 in 1992 who have household earnings of $30,000 (the median)would need to save 18 percent of their income in the years remaininguntil retirement, if they wish to retire at age 62 and maintain theirpreretirement consumption levels throughout retirement. This 18 percentis above and beyond the household’s automatic contributions toSocial Security and pensions. Postponing retirement to age 65 reducesthe necessary saving rate to 7 percent. Typical actual saving rates forpersons approaching retirement have been estimated at 2 to 5 percent.These estimates mask substantial variation within the populationapproaching retirement. It has been found that roughly 70 percent ofhouseholds with persons aged 51-61 need to add to their savings,above and beyond their automatic contributions to Social Security andpensions, in order to retire at age 62 and maintain their standard ofliving; this estimate decreases to 60 percent if retirement is postponedto age 65. But by the same token, roughly one-third do not need to addto their savings to maintain consumption throughout retirement. Notsurprisingly, the saving rate necessary to maintain the preretirementstandard of living is substantially higher for households with lesswealth. Finally, although several theories have been advanced toexplain why so many people have a saving shortfall, the availableempirical evidence is not conclusive.To help Americans save enough to enjoy a more secure retirement,the President has proposed to reserve about 12 percent of the projectedunified budget surpluses over the next 15 years—averaging about $35billion a year—to establish new Universal Savings Accounts (USAs).Under the proposed plan, the government would provide a flat taxcredit for Americans to put into their USA accounts and additional taxcredits to match a portion of each extra dollar that a person voluntarilyputs into his or her USA account. This plan would provide more helpfor low-income workers. These accounts will build on the currentprivate sector pension system to enable working Americans to buildwealth to meet their retirement needs.169