Retirement savings fear grips Americans
More than half of Americans are worried they won't have enough money to retire, a poll finds.
Americans are freaking out about their personal savings -- and for good reason. A recent Gallup poll found that 59 percent of those surveyed were very or moderately worried they won't have enough money for retirement -- by far their biggest concern.
Many people once counted on a triad of support for retirement -- Social Security, personal savings and employer-sponsored pensions. Yet in the wake of the Great Recession and a long stretch of high unemployment and stagnant wages, the once-dependable foundation has been crumbling.
Employers have phased out generous defined benefit pension programs in favor of 401(k)s and other workplace-based retirement accounts. Personal savings have taken a dive as many people have tapped retirement savings to pay the rent or help make ends meet. And many young people seriously question whether the Social Security trust fund will be able to pay them anything by the time they retire.
The latest National Retirement Risk Index from the Center for Retirement Research (CRR) at Boston College says that more than half (53 percent) of households risk falling more than 10 percent short of the retirement income they'll need to maintain their standard of living. More than 40 percent of retirees are also at risk of running out of money for daily needs, out-of-pocket spending on health care or long-term care, according to the Employee Benefit Research Institute (EBRI).
Even more alarming, the National Bureau of Economic Research recently concluded that nearly one-quarter of Americans could not come up with $2,000 in 30 days if necessary, and another 20 percent would have to pawn or sell possessions to do so. That would mean nearly half of all Americans are financially stressed.
"The graying of Americans, a growing retirement population, rapid changes in the private employer pension programs, projected insolvency in public pension funds, fiscal pressures at both the federal and state level -- all this and more requires policymakers to renew their focus on ensuring existing programs support individuals and families in their twilight years," said Bill Hoagland, a senior vice president of the Bipartisan Policy Center.
The mounting crisis over retirement savings and investment underscores a key facet of the evolving national debate over income inequality: While many households are well prepared for retirement, only 17 percent of people in the lowest income quartile will have sufficient resources to avoid running short of money by the end of their lives, according to EBRI's 2014 metric.
The Bipartisan Policy Center on Monday is launching a "personal savings initiative" to begin formulating a series of innovative proposals to try to increase national savings, improve income security in retirement, and guard against the potential costs of long-term care. While Congress is unlikely to take up any meaningful tax or financial services legislation before November, a new commission chaired by former senator Kent Conrad (D-ND) and former Social Security Administration official James B. Lockhart III hopes to outline an action agenda for the coming year.
The group will look for ways to beef up the defined contribution retirement system by increasing personal savings for retirement and improving the effectiveness of tax-advantaged savings vehicles, according to a sum of the initiative.
The commission will also examine the impact of federal policies on private savings, the finances and operation of Social Security Disability Insurance, the interaction of Social Security with personal savings, the impact of long-term care needs on retirement security, and the role of homeownership and student debt.
The reasons for shortfalls in retirement savings are complicated, but three stand out, says the BPC:
A sea change in workplace retirement plans
Over the past two decades, the workplace retirement landscape has dramatically shifted to defined contribution plans, in which a worker and in some cases the employer contribute to an account managed by the employee. These have largely replaced defined benefit plans, which specify a benefit -- often a percentage of the average salary during the last few years of employment -- once the worker retires.
Since 1998, the number of companies offering any sort of defined benefit plan plummeted from 71 to 30 -- and an increasing number of those are hybrid plans, where workers accumulate an account balance rather than an annuity. When 401(k)s were created in 1978, they were meant to be a supplement to traditional defined benefit pensions, not a stand-alone retirement account. But over time, they have evolved to serve that purpose -- although they typically provide far less in long-term benefits than the old plans.
Dismal personal savings
The reasons for the long decline in personal savings are difficult to pinpoint, but they likely include stagnant real incomes for many workers, rising standards of living and higher consumption, and a weaker dollar than in the past. The savings rate is the percentage of money that one deducts from his or her personal disposable income for retirement.
America's savings rate fell steadily from the early 1980s through the mid-2000s, ticking up only during or after recessions, according to a Washington Post analysis. It topped 11 percent during President Ronald Reagan's first term. From 2005-2007, the annual rate averaged 3 percent. The savings rate essentially doubled during the Great Recession, and stayed there, averaging nearly 6 percent from 2009-2012. By early 2013, the rate had dipped to 2.6 percent, before rising again to 4 percent by mid-2014.
A Capital One ShareBuilder survey this year found that 72 percent of Americans are saving – while many more than that know they should be -- and only one-fifth of them are saving 10 percent or more. On average, people are saving only 6.4 percent of their annual income, the survey found.
Taking the money out
For those with defined contribution retirement accounts, carefully managing withdrawals is part of the challenge. Many people are shocked to discover that their account balances, when they need them, are smaller than they anticipated because of cash-outs during job changes, hardship withdrawals, or expensive 401(k) loans. Moreover, those who do not use their savings to purchase lifetime annuities face the risk of outliving their savings.
Individuals without long-term care insurance face impoverishment, having to spend almost all of their financial assets and income on care before they can qualify for long-term support benefits through Medicaid, the federal-state safety net program.
More from The Fiscal Times
Nobody plans to fail, however, many fail to plan.
Retirement is a personal responsibility, not a governmental function. Many people will be looking to the government to bail them out, but that won’t happen because the government is broke and will not be able to afford to bail them out.
If you do not plan for retirement and take responsibility for yourself, you will have no one but yourself to blame.
If you have paid into Social Security, you are entitled to payment when you retire. You are not entitled to a raise every year or so for any reason. Social Security is meant to keep you out of poverty, not pay for every convenience life has to offer.
Back in the mid to late 80's when 401(k)'s became THE retirement vehicle, my then employer sent us to presentations by both my employer and the vendor (Fidelity, I think) to "help us understand the process and advantages." Towards the end of the Q&A session, this little guy in the back of the room asked: "gee doesn't this, essentially, shift the investment risk from the employer to us, the employees?"
Immediately thereafter, I was hustled into a room by 3 horrified mucky-mucks (read; honchos) and roundly taken to task for asking a question in a public forum that "cast aspersions and raised doubts in the minds of my fellow employees" ... translation ... I was right on the money!
25+ years later, while I have accumulated significant retirement assets and have no cause to complain, generally speaking, that does not seem to be the case. I agree that discipline is required but many/most people aren't financially savvy enough to manage their 401(k) either. The demise of traditional pensions and shifting the risk to the employee IS and remains part of the problem.
There was a time when people helped people because it was the right thing to do. There was a time when people saw a need and worked in the community to provide for the need. There was a time when family helped family and generations lived together to help provide for each other. There was a time when if a person had a problem they solved it themselves or asked for help from family and friends. There was a time when people had respect for each other. There was a time when religion was an important part of our lives. There was a time when it was okay to believe in God and let everyone know it. There was a time when religious organizations were free to help those in need and provide services to all without interference. There was a time when neighbor helped neighbor and knew each other’s names.
Now people help people just for there own self-esteem and public image. Now when people see a need they wait for someone else to fix it or run to the government. Now we regard family as a burden and would consider living together a hardship, so we run to the government. Now if we have a problem we run to government and expect them to make it all better. Now it’s everyone for themselves and everything you do is wrong and the government can do it better. Now religion is something to be hidden, only whispered about and we run to the government to protect us from another’s beliefs. Now if a religious organization tries to help they have to give up their own customs and identity so no one they are helping gets offended, and the people run to the government to complain if they see a symbol. Now we try to be as far away from our neighbor as possible, and we don’t even know our neighbors name as we expect them to give up there rights and we run to the government to force our neighbor to do what we want so we are not offended.
They thought their pensions would always be there, stock prices would continue to rise, their homes would always increase in value, and their pay would increase until the day they retired. When times are good, it's hard not to believe that unless you struggled, or saw the struggles first hand in a previous recession.
Most people have no concept of what it takes to retire and they have no plans in place to secure their finances. They'd rather spend now and "live to the fullest" not realizing the huge burden that their lack of responsibility means for the next generation.
I worked for years as a CDL driver for a beverage distributor in CT. Reasonable pay, good benefits, 401K and a pension which they still offer today. A fully funded pension. We always had trouble finding and keeping honest and dependable people. The hours are long and the work can be hard but is good place to make a decent living is one is so inclined. I imagine they still have that problem of hiring a person who will give their all and receive a good career and all that goes with it.
The jobs are out there. The question is are you really willing to work?
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