More Savings and Smart Investing Needed by Americans

We aren't saving enough to retire comfortably. And we're certainly not investing wisely that which we do save.

And expecting our already overburdened Social Security system to provide for our well being as oldsters is being unrealistic in the extreme.

Workers Saving Too Little to Retire has the story:

"Workers and employers in the U.S. are bracing for a retirement crisis, even as the stock market sits near highs and the economy shows signs of improvement.

New data show that powerful financial and demographic forces are combining to squeeze individuals and companies that are trying to save for the future and make their money last.
Fifty-seven percent of U.S. workers surveyed reported less than $25,000 in total household savings and investments excluding their homes, according to a report to be released Tuesday by the Employee Benefit Research Institute. Only 49% reported having so little money saved in 2008.

The survey also found that 28% of Americans have no confidence they will have enough money to retire comfortably—the highest level in the study's 23-year history.

The same forces are weighing on corporate balance sheets. Based on another recent report, the Society of Actuaries said that rising life expectancies could add as much as $97 billion to corporate pension liabilities in coming years, an increase of up to 5%.

While Americans are living longer, the extended life spans will make it tougher for workers trying to stretch retirement savings and put additional strains on pension plans. . . .

The percentage of workers who have saved for retirement plunged to 66% from 75% in 2009, according to the Employee Benefit Research Institute survey.

Only about half of the 1,003 workers and 251 retirees surveyed said they were sure they could come up with $2,000 if an unexpected need were to arise in the next month.

"Workers are recognizing there is a crisis," said Alicia Munnell, director of the Boston College Center for Retirement Research. She noted that companies continue to do away with traditional pensions. . . .

The EBRI survey doesn't count traditional pensions, which are designed to provide retirees for steady income throughout their lives.

But pensions have become a much smaller component of Americans' retirement-savings mix over the years. The portion of private-sector U.S. workers covered only by so-called defined-benefit plans fell to 3% in 2011 from 28% in 1979 . . . .

The effect of longer life spans on pension obligations has been dwarfed by the impact of declining interest rates over recent years. Because of the way pension obligations are calculated, lower interest rates means that future obligations are higher today.

But interest rates are likely to rise at some point, which will lessen pension obligations. That is less likely with longevity assumptions. . . .

Individuals face the same problem, Mr. Cadenhead said: "If we're asking them to provide for their own retirement, they're living longer, and it takes more money to provide for their own needs over the course of a lifetime."

Joe LaCascia, a 75-year-old retired insurance broker in Polk City, Fla., said he and his wife thought they would have enough savings outside their life insurance policies to last until age 95.

Now, he estimates he only has enough to last until they're 85.

He said he is more concerned about what the future holds for his children, a 51-year-old art director-turned-roadie and a 49-year-old third-grade teacher.

"They're never going to be able to create wealth, other than what our generation leaves them and what they do with it," he said. "They have more uncertainty than we have.""

Summing Up

The bad news is that Americans haven't saved and invested well enough either as individuals or as a nation to live comfortably in retirement.

The good news is that we're all finally starting to face this unfortunate reality. Now we can take the necessary steps, both individually and collectively, to change that reality for the better going forward.

We need better education, more and better jobs, more savings, better investment knowledge and less dependence on government programs to "take care of us" in our old age.

We also need to lighten the burden on today's workers and protect the oldsters who have already retired and need government assistance.

All this can only come with higher economic growth and improved job opportunities led by the private sector, better and less costly education, and a more balanced view toward providing for our needs in both our working and post-working lives.

It's all eminently doable, and now that we're finally beginning to focus on the problem, we'll deal with it effectively. That's who we are. Problem solvers.

All that said, the solution needs both our individual and collective attention and action, and can't be postponed indefinitely.

That's my take.

Thanks. Bob.