The downward trend in retirement income adequacy for Americans in the middle and below has gone unnoticed because of a tendency to look at average rather than median retirement wealth, according to a study released May 2 by the Washington, D.C. based Economic Policy Institute.

The study, Retirement Insecurity: The Income Shortfall Awaiting the Soon-to-Retire, by Edward N. Wolff, a New York University economist, found that while the median has been dropping, the average has been rising, fueled by a growing gap between the rich and the middle, according to a news release issued with the study.

"The huge growth in wealth for the very wealthy has, until this study, masked what has really been happening to retirement nest eggs for most American," Christina Weller, an EPI economist who studies retirement and Social Security, said in the news release. "We need to take a fresh look at what we are doing to strengthen and expand pension coverage or millions of Americans will pay the price for our neglect."

According to the news release, more than 40 percent of households headed by someone between the ages of 47 and 64 will not be able to replace even half of their preretirement income once they stop working. Nearly 20 percent will have retirement income below the poverty line.

"In terms of retirement investment, what should have been the best of times turns into something closer to the worst of times when you look closely at what really happened to retirement wealth," Wolff said in the news release.

"In 1998, every group of near-retirees except those at the very top lost ground compared with their counterparts in 1983. The contraction of traditional defined benefit pension plans and their replacement by defined contribution plans appears to have helped rich, older Americans but hurt a large group of lower-income Americans," Wolff added.

Study findings: Between 1989 and 1998, the share of households whose projected retirement income is less than half of their preretirement income rose sharply from a 29.9 percent share to 42.5 percent;
Among African American and Hispanic households, the percentage that will have to live on less than half of their preretirement income shot up even higher, to 52.7 percent, in 1998;
For households at the median, retirement wealth declined by 11 percent between 1983 and 1998;
The share of households facing the prospect of retirement income below the poverty line grew from 17.2 percent in 1989 to 18.5 percent in 1998;
Only the very richest pre-retirees-those with net worth of $1 million and above-saw this wealth increasing between 1983 and 1998;
For all groups of pre-retirees with combined retirement wealth of $999,999 or less, that wealth has shrunk between 11 percent and 32 percent since 1983;
The share of near-retirement households with any pension coverage-whether traditional pension plans or defined contribution plans like tax code Section 401(k) plans-remained almost unchanged from 1983 to 1998, growing just 3.5 points to 73.7 percent coverage in 1998; and
The single bright spot for the one-quarter of Americans without private pension coverage of any kind is that social Security coverage became virtually universal, rising from 82.4 percent in 1983 to 98.4 percent in 1998.

Social Security Debate - "By focusing only on Social Security, we've been trying to fix the part of the retirement system that's not broken," EPI President Jeff Faux said in the news release.

"The way we now go about providing for retirement just isn't working for middle and low-income Americans. It's time to stop talking about shifting Social Security money to private accounts and start talking about how we can make sure that working Americans will have adequate pensions that will enable them to live decently in retirement," Faux said.

Senator Jon Corzine (D-NJ), who took part in a new conference releasing the study, said in the news release, "As this study demonstrates, millions of Americans are ill-prepared for retirement. The study shows that America's seniors cannot afford the deep cuts in guaranteed Social Security benefits that President Bush's Social Security commission has proposed."