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Introduction

Public and policymaker concern about retirement savings led to passage in 1974 of the Employee Retirement Income Security Act (ERISA) and to the Social Security Act Amendments of 1983. The Arthur Andersen, Enron, and WorldCom debacles of this new century have once again put retirement savings on the front pages of our news magazines and papers, and as the headline story on television news. The Encyclopedia of Retirement and Finance is being published at a time of great need for basic information. This need encompasses the public, the media, and decision makers.

The Encyclopedia makes clear what a complex web of issues reformers must deal with as they seek to follow the lead of ERISA in strengthening retirement opportunity and retirement security. Needed reform once again surrounds Social Security, as projections make clear that the near-solvency crisis of 1983 will repeat itself within 20 years if action is not taken. Again, basic information for understanding is essential.

The first baby boomers will reach the magic Social Security age for full benefits at 66 (yes, 66 for the first wave and 67 for later waves) in 2012, less than a decade ahead. For them, it is time to focus on when and whether they can afford to retire at 66. Too many will not read this Encyclopedia and will sign up for Social Security when they reach age 62. They will not have learned that benefits are about 30% less if you take them at 62. Further, they will not have read that for the average earner that means an age 62 income replacement for a single individual at about 25% of final-year earnings (about $600 per month or $7,000 per year). While barely enough to live on, it is not the stuff that cruises and the “good life” are made of.

Too many will not read this Encyclopedia and will fail to ever open an Individual Retirement Account (IRA)—only 7% contributed in 2001 according to the Internal Revenue Service. Nor will they contribute to a savings or 401(k) plan at work—of those who could in 2001, the government reports that 24% chose not to do so, and over 80% chose to contribute less than the law allowed. Reading a few select articles within this Encyclopedia would give them a clear understanding of why they should open that IRA and contribute to that plan at work: it is tax effective; Social Security alone will not provide livable income; and as an average American, if I do not save, no one will do it for me.

Too many will not read this Encyclopedia and will think that “life expectancy” can be counted on to end before the money runs out. They will continue to miss the desired use of average in descriptions of life expectancy. They will focus on media reports that the “life expectancy” of a woman born today is 79, or a woman at 65 today is 85, without understanding that they must always assume the word average and understand that “I have a 50% probability of living longer if I make it to that age.” For myself, my dad turned 89 and my mom 87 in 2002. Both have now lived beyond multiple “average age specific life expectancies” and can now expect, on average, another 5 years. But it keeps rolling forward! The tables suggest that if I make it to 65, I, on average, can expect to live until 80, while my family and personal history suggest a number closer to 100. What if I retired at 62 with only an inadequate Social Security benefit and then lived to 100? A pretty financial picture it would not be. A reading of this Encyclopedia, however, would keep people from making that mistake as it guided them to knowledge about living longer and to retirement calculators that would make the numbers and the needs very clear.

Too many will not read this Encyclopedia and, as a result, will not have visited the many helpful articles or used the recommended retirement calculators. They will have missed the notations in the calculators and the knowledge offered here about “Health Benefits” and “Long-Term Care” and the savings needs that these represent during long years of retirement.

Too many will not read this Encyclopedia and will not have the information to help themselves and to advise and care for family members on issues ranging from accident insurance to accountants to assisted living to cash flow planning for retirees to drugs to reverse mortgages to salary reduction plans to titling assets to wills, and so much more.

Lois Vitt and the Greenwood Press are to be congratulated on this expanded new edition of the Encyclopedia of Retirement and Finance. This Encyclopedia should become a staple of gift giving as the baby boomers continue to age: from child to aging parent, to help them understand what they should be doing to prepare for the future; from parent to college-bound youth, to help them understand why they should seek to avoid high interest rate credit card debt and start saving early to enjoy the full magic of compound interest; from aged parent to graying adult children, as a means of sharing what they wish they had done to be better prepared for their ever-extending years; from employer to employee; or from financial advisor to client. As a transfer of information or as suggested reading, these book volumes can literally help reduce pain and increase future economic security if they are read and absorbed.

Two-thirds of today’s retirees live almost entirely on Social Security. The same is going to be true for the baby boom generation unless they begin to take action now. As this Encyclopedia document, Social Security benefits will be paid at later ages and at the same time decline in the percentage of final earnings they pay. Even with that, the program will require either large tax increases or substantial benefit reductions in the decades ahead. Social Security is an antipoverty floor of income that will not be expanded for most Americans in any reform. The aging of the baby boom will move the proportion of the population over the age of 65 from the current 13% to nearly 23%. This carries changes that are documented in this Encyclopedia for every generation alive today and for those yet to be born. The Encyclopedia of Retirement and Finance is a public service volume that will enhance economic and income security. The time for reading it and taking action is now!

Dallas L. Salisbury
President and CEO
Employee Benefit Research Institute
Washington, DC