Authors Senior Vice President and Director of Research John Weinberg and economics writer Doug Campbell examine the extent to which Americans are financially prepared for retirement. In their essay, they describe the results of careful studies on American saving habits. Review of the research and data shows that most families nearing retirement are saving both adequately and optimally -- or the best they can given their lifetime expected incomes. However, estimates about savings adequacy depend on the assumption that entitlement program benefits will be forthcoming.

Population aging and the movement of baby boomers into retirement challenge that assumption and may portend a future in which some people will need to consume less than they would otherwise. The authors describe the tradeoffs involved with various approaches, and conclude that the sooner we settle on a solution to our federal retirement problems the better off all generations are likely to be.

The Richmond Fed's Annual Report also includes reports on the region's economy and the Reserve Bank's operational and financial activity, and takes a special look at the Bank's involvement in the Fifth Federal Reserve District communities. -- Federal Reserve Bank of Richmond