Pete Peterson is back on the hunt to cut “entitlement” spending, but a new report by the Center for Economic and Policy Research finds Baby Boomers nearing retirement are likely to need Social Security and Medicare more than ever. Why? Because the housing bubble led people to believe they were set for retirement. Why save when you have more than enough worth in your house? In fact, why not refinance now and live it up a little? Well, the days of giddily checking Zillow are gone and with it are many an American’s dream of a comfortable retirement.

If house prices stay the same through 2009, the authors of the study project the median family headed by a person between the ages of 45 and 54, those in their prime earning years, will have 24.7 percent less wealth than did the median family in this age group in 2004. These families will have accumulated just $113,268 in net worth in 2009, barely $15,000 more than their counterparts in 1989, whose net worth totaled $97,600.

If real house prices fall 10 percent, the median family in the 45 to 54 cohort will see a 34.6 percent loss in wealth compared with the median in 2004, while families in the 18 to 34 cohort will lose 67.6 percent. If prices fall by 20 percent, a more pessimistic – but still realistic – scenario, families in the 55 to 64 cohort will experience a loss of 49.6 percent of their wealth compared to the same cohort in 2004.

Baby Boomers have watched their portfolios expand and contract through the stock and housing bubbles. Without defined benefit pension plans, they are in a scramble against time to save what they’ll need to retire. While some political figures have suggested cutting back Social Security and Medicare in order to relieve pressure on the budget, as a result of the housing crash, the workers who are now approaching retirement will be far more dependent on these programs than workers had been in prior years. These workers will have a very difficult time supporting themselves in retirement even with benefits at current levels.

The fact that workers have so little wealth suggests the need for new mechanisms to promote retirement savings. For example, several states, including California, Connecticut and Washington, are now considering a system of state administered portable retirement accounts which would offer pensions to those who are not currently covered by an employer’s plan. It will be difficult to get Americans to save again, but the government can act to make it easier for workers who want to start.

This entry was posted on Thursday, July 10th, 2008 at 2:59 pm and is filed under Politics, Economy/Budget .