Retirement Picture Bleak for Many

When home equity and government assistance are taken out of the picture, the snapshot for retirement looks much bleaker, according to a new study from Barclays Global Investors (BGI).

Half of all middle class Americans have about a quarter less saved for retirement than they realize, said Matthew Scanlan, head of Americas Institutional Business at BGI and co-author of The Future Shock of Retirement study.

While some academicians show that Americans are ready for retirement, the BGI research takes the same statistics and challenges those assumptions: “What we found is that things are quite a bit worse than what we thought originally,’ Scanlan said, speaking at a breakfast meeting yesterday.

“The Wealth Effect’

Scanlan and co-authors Jonathan Cohen, senior fixed income strategist at BGI, and Matthew O’Hara, head of BGI’s Securitized Credit Research, used numbers from the Health and Retirement Study — data common to many other studies. But Scanlan and Cohen simulated shock to the government benefits and home equity — two elements, they said, that give Americans false security about retirement.

Scanlan refers to “the wealth effect,’ or the intangible wealth people attribute to themselves because of the value of their homes. People forget that they will need to live somewhere, and their house is not expendable wealth, he explained.

BGI’s research showed that Social Security and home equity represent a significant component of total wealth, even among the highest wealth tier. Among the middle wealth decile in the study, 40% of total wealth comes from Social Security and home equity.

Cohen and Scanlan suggested that this is a dangerous way of thinking, as government-controlled retirement, such as Social Security, is not dependable. When BGI manipulated the data to account for the reduction of government benefits and home equity, the study found that about one-half of middle class Americans could lose 25% of retirement wealth.


The report proposes solution from government, employers and the individual.

Employer-based plans should be improved by considering more paternalistic options to further reflect the dying defined benefit plans. “Bringing the best of DB to DC is going to be a critical element to solving the problem,’ Scanlan said. Target-date lifecycle funds signal a step in the right direction but will need to evolve into more sophisticated investment engineering, the report says.

Employers should develop strategies that more effectively invest the sponsor’s matching contributions as well as more targeted investment strategies that more specifically take into account the unique characteristics of the individual retiree, the report explains.

Cohen and Scanlan also said individuals need to take more responsibility for their retirement by taking advantage of more annuitized income. Plan sponsors and financial service providers should put more emphasis on this, the report suggests.

The complete study is available on the BGI Web site at: