Predicting an inevitable increase in income and payroll taxes in the coming years, the Center for Retirement Research (CRR) released a report stating that the amount of people ‘at risk’ of not having enough income in retirement will increase as well. Particularly at risk are high-income households on the verge of retirement, the report said.
The current spending and debt levels, as well as the forecast that government spending as a percentage of the GDP will continue to increase, makes it very probable that a substantial tax hike will be needed to bridge the gap between revenue and spending, the CRR said. This study uses a “high spending and revenue” scenario where tax revenues would jump from 18-20 percent to 28 percent of the GDP.
As a result, the National Retirement Risk Index (NRRI) will jump to 47 percent – up from 41 percent – for early boomers (those still working but close to retirement) who will be “taken by surprise,” the report says, due to the fact that they have spent most of their working life accustomed to the current tax system and will have to adjust quickly to a new one as they approach retirement.
Fifty-eight percent, up from 56 percent, of ‘Gen-Xers’ – generally those aged 30 to 45 – will be at risk, yet this group has time on their side and can respond by reducing consumption and spending levels now. Finally, 52 percent, up from 48%, of late boomers will be at risk; this is the smallest increase among age groups.
These are admittedly conservative estimates, said the report, as the NRRI does not take into consideration or measure behavioral affects or changes due to higher taxes and lower net income, such as savings increases or decreases; the index automatically assumes the same savings percentage rate for each household before and after tax increases, which will likely not be the case for all Americans.
To read the whole brief, see here.
Written by Clare Pierson