7/23/2012 3:47 PM ET|
5 reasons boomers will go bust
Millions of baby boomers will retire in the next 2 decades. Many haven't prepared enough -- and they face a shocking reality.
AIG CEO Robert Benmosche said in June that in light of the euro crisis, retirement ages in Europe would have to move to 70 or 80 years old to make pensions and health care affordable for younger people. Though that's not likely to happen in Europe any time soon (we're talking about countries like France, which erupted in violent protests over a proposal to raise the age from 60 to 62), Benmosche is not alone in his doomsday predictions.
In the United States, retirement has also reached a critical point. Seventy-seven million baby boomers are slated to retire over the next 20 years, with approximately 10,000 reaching retirement age every day, while 401k accounts have been drained by the recession, pension systems are strained and Social Security coffers are being drained of money.
Here are five worrisome facets of the looming U.S. retirement crisis:
The unplanned retirement
Americans have never excelled at retirement planning, but the economic downturn has made them even less prepared. More than 60% of workers in a recent survey said they've lost confidence in their retirement plans since 2007, according to the Transamerica Center for Retirement Studies. The survey also found that more than half (54%) of workers in their 60s said they haven't saved enough to sustain themselves for the rest of their life.
A recent report from the Employee Benefit Research Institute (EBRI) found similar results. Just 14% of those surveyed were very confident they will have enough money to live comfortably in retirement. Even more shocking? Sixty percent of workers reported that the total value of their households' savings and investments (not including the value of their homes and any official retirement benefit plans) was less than $25,000.
Though the majority of Americans now depend on employee-provided 401k accounts for their retirement, according to the Transamerica report, 23% of workers don't participate in an employer-provided retirement plan. Another report, from the financial industry think tank LIMRA, found that nearly half (49%) of Americans aren't saving for retirement at all.
For those who do contribute to a 401k plan, the Transamerica report found that the average contribution level has dropped to 7% of an employee's annual salary (the commonly recommended amount is 10% to 12%), and the average balance in a 401k account is just over $60,000, according to the EBRI. For those who are 10 years away from their planned retirement age, more than a third have saved less than $25,000 (that's $875,000 short of the EBRI's suggested $900,000 that a typical person would need to live out his or her retirement years).
The 80-year-old worker
Though 65 is considered the official retirement age in the United States (the year someone born in 1947 or earlier is eligible to receive Social Security benefits), the reality is much different. Eighty-six percent of workers in their 60s predict they will work past age 65, according to the Transamerica report. And one quarter of middle-class Americans plan to delay retirement until they are at least 80 years old (currently life expectancy in the U.S. is 78), according to a Wells Fargo poll in November. Essentially, many Americans are planning to work until they die.
Too sick to retire
According to a recent report from Fidelity Investments, a 65-year-old couple this year would need an estimated $240,000 to cover medical costs through retirement (and that's including traditional Medicare coverage), a 50% increase since Fidelity first did the study in 2002, and up from $230,000 last year.
At the same time, most people have no idea how much they need to save for medical costs in old age. In a Nationwide Financial survey, boomers guessed they would need about $5,600 a year to cover out-of-pocket costs (or about $112,000 in total), less than half of the Fidelity Investments estimate. Many of those interviewed in the survey reported being "terrified" of what health care costs may do to their retirement plans.
A program in peril
The latest annual trustees' report for Social Security projected that the program's trust fund will be exhausted by 2033, three years earlier than last year's estimate. When the fund runs dry, the government will be able to pay only 75% of the promised benefits to retirees. Meanwhile, the Medicare trust fund will be exhausted by 2024, according to the report. The main reason for the accelerated timeline is the sluggish economy and high unemployment, causing total earnings in 2011 to be 1.6% less than expected. "Lawmakers should address the financial challenges facing Social Security and Medicare as soon as possible," the report said.
More from The Fiscal Times:
VIDEO ON MSN MONEY
The government will print every cent needed to pay you the promised amount.
BUT !!! - Your entire months SSI check will only buy a loaf of bread. Ha Ha Ha !!
AND --- the good health care providers won't be accepting currency
YOU BETTER HAVE SOMETHING ELSE TO TRADE...
When we checked against those statements years ago ...They were pretty accurate.
We got larger percentages back then though....62 was just shy of 80%, 65 was either 100 or 97%.
There's another idea, I believe anytime a Soc.Sec. check is sent outside the U.S borders a 25-28% surcharge tax, should apply, on top of the current appropiate Medicare payment...
If the ex-pat denies Citizenship or becomes citizen of another Country...50% whacked off..for tax.
But alas, SS is a very badly run system......
I think the Country has been taken over by paying spammers and the like.....
11 on the front page ??
If the benefits from SS do not increase past the 100,600.00 mark, then why should the rate? The % tax should be increased to pay for the benefit. I know it is a hard concept for a lot of the deadbeats to pay their share, but that's what it is. You want something, you need to pay for it, not expect it be GIVEN to you because you are entitled to it.
Retirement is a many year plan. I have planned and SAVED for it. I will be able to do it. It's like the grasshopper and the ant parable.
I think the sad part is that most of us believe we paid in more to social security than we actually did.
If the average American lives until the age of 79, and social security tax rates for employers is 6.2 percent and employees 4.2 percent (up to $110,100), then isn’t it clear that we have 2 choices- raising the tax rate on individuals up to 100,100 (or some higher amount) or removing the cap on income over 100,100? I’m no expert but it seems to me removing the cap is the only real solution. Everything else is for not. Who among us could be against taxing all of the money at the same rate? It’s not like there are a lot of folks that would be hurt by it. Don’t those of us making over 100,000 per year get just as sick as those of us that don’t?
First off, seem's they change the term "baby boomers" to fit WHATEVER years or ages, to fit the latest scheme..??
Second......You do not need a Million Dollars in savings or investmnts to retire; That's a MYTH.
Third....Most people(population percentage) will never save or have that much....Anyway.
Fourth....If all major obligations are paid off, such as Home or homes(like a cottage), fairly newer vechicle(s) and all children are gone...With a fair amount of savings or interest and dividends; You can live probably on about 55-65% of your past income....A lot of associated cost go away when you retire.
And with SS as a monthly bill payer when two are collecting, usually covers most obligations.
Fifth...Some may have to live more frugal then others, but there are dozens of ways to save on many purchases. It's called smart shopping..
Sixth...They say it takes 75-80% to maintain your lifestyle, but I kind of think that is more then you might need, unless you are in to a lot of extravagances.
Everyone has a different story or needs..Best to figure that out, before you get to retirement.
Oh yes....Healthcare, Insurance wise,medicare or in General well being, is or can be a big game changer....Stay healthy.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.