Will U.S. workers ever be able to retire?
Despite the rebound in home prices and new all-time nominal highs in the stock market, many Americans are looking at an unpleasant retirement, if they even make it that far; according to the Employee Benefit Research Institute's latest survey on retirement confidence, the majority of workers have saved for their golden years, but the piggy bank is quite slim.
Excluding the value of a primary home and any defined benefit
plans, 57% of households say they have less than $25,000 in savings and
investments, while 28% say they have less than $1,000. Furthermore, the Center
for Retirement Research at Boston College has warned that 53% of American
households are at risk of not having saved enough to maintain their living
standards in retirement.
Americans are still planning for retirement, but, as one would
expect, how they have saved for retirement depends very heavily on age and on
pre-retirement income.
Compared to other countries' retirement systems, that of the
United States doesn't stand up well. In a recent report, the Mercer consulting
firm and the Australian Center for Financial Service, gave the United States a
"C" grade, a rating considerably worse than the A received by Denmark
and the B-plus given to the Netherlands' retirement system, which combines a
Social Security-like fund with a nearly universal pension system to which
employers contribute. The study showed plainly that many other countries are
more willing than the United States to mandate unpleasant steps by workers and
employers to fund a stable system.
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The United States does have some mandates; employers must pay
6.2% of each employee's salary into Social Security, and every employee must
also contribute that amount. But the Social Security system faces the threat of
a huge shortfall. One-third of America's retirees get at least 90% of their
retirement income from the program, with annual benefits averaging a modest
$15,000 for an individual.
Another important pillar of America's retirement system, the
401k, is voluntary and generally not accessible to low-wage workers, who may
not have the income necessary to invest. Although some employers have embraced
automatic enrollment for their workers, more than 58% of American workers are
not in a pension or 401k plan. Those employees with such plans, whose payouts
are dependent on contributions and investment returns, are exposed to the risks
associated with the stock market, which after the financial crisis were quite
great.
The problems associated with these two primary means of saving
dictate which financial sources fund the retirements of lower-wage workers and
higher-wage workers. Gallup's annual Economy and Personal Finance poll,
conducted between April 4 and April 14 of this year, sampled more than 2,000
adults to discover how non-retired Americans expect to fund their retirement.
The results show that expectations varied significantly by annual household
income. Upper-income retirees primarily said that investments, such as 401ks,
or individual stock investments would fund retirement, while lower-income
respondents said that Social Security and part-time work would be major
sources.
In fact, of those respondents earning $75,000 or more per year,
65% said that retirement savings accounts would be the "major source"
of retirement funds, and only 17% said Social Security. Comparatively, 42% of
respondents earning less than $30,000 per year said Social Security would be a
major source of income, 27% said work-sponsored pension plans, and another 27%
said part-time work.
Younger generations of workers, particularly the 18 to 29
year-old bracket exhibited uncertainty about the future of the Social Security.
Gallup found that only about one in five young adults expected to receive a
Social Security benefit when they retire. Fifty-three % of respondents from the
youngest age group said that they expected to fund their retirement through
401ks, while 49% said savings accounts or CDs and 24% said part-time work.
When looking at retirement strictly through the lens of age, the
poll's results show the changing nature of retirement funding. Young
respondents are looking to sources outside of Social Security to support them
after they stop working, but those nearing retirement age now see Social
Security contributing significantly to income — the program is essentially tied
with 401k plans as the top source among 50 to 59-year old non-retirees, and it
is the number one source among non-retirees aged 60 and older.
Wall St. Cheat Sheet is a USA
TODAYcontent partner offering financial news and commentary. Its content is
produced independently of USA TODAY.
Scott Larson
Reverse Mortgage
Specialist
(408) 315-2503 direct
(408) 872-4002 fax
The Information Age
offers much to mankind, and I would like to think we will rise to the
challenges it represents. But it is vital to remember that
information – in the sense of raw data – is not knowledge, that knowledge is
not wisdom, that wisdom is not foresight. But information is the first
essential step to all these. -unknown
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