Monday, May 2, 2016

An American Disaster Dead Ahead? ... Individual Saving and Investing for Our Retirement Years Is an Absolute Necessity That Isn't Being Addressed

While working, Americans set aside in the form of savings and investments far too little for the sure and soon to come retirement years.

 The typical American couple has only $5,000 saved for retirement  makes that point perfectly clear:

"When American companies began switching from traditional pensions to self-directed 401(k)-like plans in the 1980s and 1990s, it was supposed to lead to a golden age of retirement security. No longer would workers be at the mercy of the company’s generosity or of Social Security’s solvency; workers themselves would be responsible for saving enough for a comfortable retirement.

Some 30 years later, the results are in: The median working-age couple has saved only $5,000 for their retirement, according to an analysis of the Federal Reserve’s 2013 Survey of Consumer Finances by economist Monique Morrissey of the Economic Policy Institute.

The do-it-yourself pension system is a disaster.

Even as the traditional company-funded pension has nearly disappeared and even as Social Security benefits are being slowly eroded, most workers haven’t saved enough to offset those losses to their retirement income. Seventy percent of couples have less than $50,000 saved. 

Even those on the cusp of retirement — the median couple in their late 50s or early 60s — has saved only $17,000 in a retirement savings account, such as a defined-contribution 401(k), individual retirement account, Keogh or similar savings account.

How long does $5,000, or even $50,000, last? Until the first big medical bill?

Morrissey figures that about 43% of working-age families have no retirement savings at all. Among those who are five to 10 years away from retirement, 39% have no retirement savings of their own.

The sad fact is that most Americans are less prepared for retirement than Americans were 30 years ago. Few have enough pension wealth to make much difference in their lives once they stop working.

The lack of savings in 401(k) and individual retirement accounts wouldn’t be a such big deal if retirees could rely on other sources of income, such as a traditional defined-benefit pension or Social Security.

Must read: Your biggest assets are Social Security, Medicare

But those other income sources are declining. Fewer and fewer newly retired people are covered by a regular pension that provides a guaranteed monthly check based on salary and years of service. In addition, Social Security benefits are already being reduced as the normal retirement age is gradually increased from 65 to 67.

Further reductions in Social Security benefits — by limiting the cost-of-living adjustment or by increasing the normal retirement age to 70, for example — would be disastrous for tomorrow’s retirees.

Social Security remains the largest source of post-retirement income for all but the wealthiest. For those over 65 in 2014, Social Security provided an average of $12,232 per year, about 35% of their income, on average, according to Morrissey’s analysis of Census Bureau data. . . .

Surprisingly, 401(k)s and IRAs provided less than $1,000 per year on average. Even the top 20% of earners were only receiving $3,000 a year from their 401(k). Not much of a contribution to retirement security, in other words.

It wasn’t supposed to be this way. The introduction of 401(k) plans, IRAs and similar tax-sheltering savings plans was supposed to ensure that everyone would have adequate retirement resources. In theory, retirees would rely less upon Social Security and more upon their own savings. . . .

Among younger workers, traditional pensions are almost non-existent, and yet few younger workers have more than a few hundred dollars saved up. No wonder 40% of millennials say they have no idea how they’ll pay for retirement and another 20% say they’ll just keep working."

Summing Up

Entitlements comprise a very big part of the federal budget. Interest on the national debt is another biggie.

We continue to add debt, and we certainly can't cut spending on entitlements because too many elderly Americans rely on these 'safety features' for their old age income and health care security needs.

Yet we can't afford to continue keep paying out money that we don't have.

We're definitely between a rock and a hard place because of the debts we have accumulated and the ongoing deficits we continue to incur. 

Our highly indebted economy shows lackluster growth and as a result, our government receipts are far too few to balance the budget.

Yet our political class refuses to discuss or take any steps whatsoever to explain to We the People this ongoing financial catastrophe in the making and what needs to be done to deal with it.

No man-made problem, which of course this one is, has ever been too big to solve, but no man-made problem, unless first acknowledged openly, can in fact be solved.

It's long past time for some straight talk from our 'public servants.'

That's my take.

Thanks. Bob. 

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