We're Getting Older, But We're Still Not Saving Enough ... Crisis Ahead!

Demographics is not a word commonly used in casual discussion about aging. It should be.


That's because the negative and rapidly developing impact of demographics is perhaps as important and as predictable as anything impacting our future prosperity, both as individuals and as a nation.


Our next big crisis will be a retirement crisis is a story worth reading and heeding for both the young and oldsters alike. Here's what it says:


"Everybody sensible knows we are facing a looming retirement crisis. Tens of millions of baby boomers are starting to retire. They are going to live in old age far longer than previous generations. . . . Yet so few people or families have saved anywhere near enough. And our public safety net is poorly managed, ill-thought-out, and threadbare. . . .                                       
                                                                               
The Boston College Center for Retirement Research has just updated its “National Retirement Risk Index,” a measure of just how many people can expect to be financially comfortable in retirement.                                        


It doesn’t make for happy reading. According to Boston College, based on current projections, about half the country is at risk of being unable to maintain their standard of living in retirement. Among low-income workers that rises to 60%. But it’s 40% even among the higher-income workers. . . . 
                                     
One of the stark issues that comes out of the report is how little the stock market boom has helped. As the Boston College researchers note, citing data from the Federal Reserve’s 2010 Survey of Consumer Finances, most people don’t own many stocks. Equities account for just 17% of the wealth of high earners, 6% of middle earners and 2% of low earners. Far more important is the value of housing — which has recovered much less dramatically than the stock market.                                        


Meanwhile, by suppressing short-term interest rates, the Fed has effectively levied a harsh tax on savers who need income from short-term deposits…like retirees.


The picture is similar in a new study by the Employee Benefits Research Institute, a Washington, D.C.-based think-tank. Their Retirement Readiness Rating says that 43% of Boomers and “Generation Xers” are at risk of running out of money in retirement. Among the poorest half of the country, that number rises sharply. Among those in the poorest 25%, EBRI estimates a stunning 83% are at risk.


Do the math: According to an EBRI survey conducted last year, 66% of workers have saved less than $50,000 for their retirement. And 28% have saved less than $1,000. Good luck with that.


The most alarming news, though, is in the fine print. Even these bleak numbers are based on the most rosy financial scenarios. EBRI assumed no changes in Social Security or Medicare. It also assumed wacky financial returns: It estimated people would earn about 8% above inflation each year on their stocks and about 2% above inflation on their bonds — net of fees! . . . most people don’t even understand the problem. For example, 89% of Americans (believed) they were on track to reach their retirement goals — but 54% of them didn’t even have a plan, and 45% of them couldn’t even define those goals.                                        


(The report warn(s): “The only way out of this box is for people to save more and/or work longer.” No kidding."


Summing Up


We're living longer. That's the good news.


We're not saving nearly enough to properly enjoy those 'extra' years. That's the bad news.


More individuals working, saving and investing those savings in stocks is the answer to perhaps the biggest demographic and behavioral challenge facing future Americans. That's the non-news.


And government programs like Social Security and unaffordable public sector pensions won't solve our problems for us. That's also non-news.


That's my take.


Thanks. Bob.