Will There Be a Retirement Crisis in America?

The Greatest Retirement Crisis in American History. That was the title to a March, 2013 article by Forbes. According to the Employee Benefit Research Institute (RCS Fact Sheet #3), fifty-seven percent of American families have less than $25,000 in their retirement accounts, including twenty-eight percent who have less than $1,000. The author of the Forbes article cited above, Edward Siedle made the following prediction: "At some point, lack of savings, lack of employment possibilities and failing health will catch up with the overwhelming majority of the nation’s elders."

This information, and much more like it, is why there has been a retirement crisis predicted for the very near future. As Babyboomers, those born between 1946 and 1964, turn retirement age, they simply will not have enough money to maintain their standard of living, and in many cases, will not have enough to meet basic expenses says a report by the Center for Retirement Research at Boston College.

The following chart contains some of the information on nationwide retirement which has led to a cry for action. It breaks down the U.S. citizens, ages 50-64, by income level and shows the average amount which has been put away by each person for retirement. The chart also includes the number of these soon-to-be-retirees in each income level.

If most of these people retire with this level of savings, it won’t be long before they have nothing but Social Security on which to live. Here are some different ways of understanding the data from the table.

• 75% of individuals nearing retirement age in 2010 had less than $30,000 on hand.
• 80% of working families have saved less than one times their annual salary, and nearly half of those have no retirement assets at all.

All of the previous data referred to individuals and families. On the national level an additional perspective is gained. We know about the federal deficit. But few have heard of the nationwide retirement savings deficit. According to The National Institute of Retirement Security, if home equity and other non retirement income is counted, there is a $6.8 trillion retirement deficit. If only retirement savings is counted, that figure rises to $14 trillion. These figures are in reference to American workers, ages 32-64 and represents the deficit between what they have and what they will need for retirement.

In 2007, fifty percent of people between 55 to 66 years of age were paying mortgages which averaged $140,000. That is three times more owed than for the same age group from 18 years earlier when only thirty-four percent were paying mortgages. (Source: Survey of Consumer finances/Board of Governors of the Federal Reserve System).

Between 2001 and 2006, people from age 50 to age 62 (as of 2004) took out $380 billion in home equity loans. Then the housing bubble burst, and many of these very people are now trying to retire.

According to many sources, including the Democratic Senator from Iowa, Tom Harkin, Social Security will continue to pay out full benefits through 2033. After that, it will be able to pay out 75% of benefits. So clearly, it needs to be tended to. Here is legislation presented by Senator Harkin which is quoted verbatim. (The legislation in depth).

Earlier this year I introduced legislation that would increase Social Security benefits modestly while extending the life of the Social Security Trust Fund through the year 2049. My proposal does so by:

• Boosting benefits for all Social Security beneficiaries by approximately $70 per month;
• Changing the way the Social Security Administration calculates the Cost of Living Adjustments (COLA) to ensure that seniors are able to better keep up with rising costs;
• Phasing out the current taxable cap of $113,700 so that payroll taxes apply fairly to every dollar of wages, ensuring that wealthy Americans and working Americans pay into the Social Security Trust fund at the same rate.

Senator Harkin also serves as Chairman, Senate HELP Committee & the Appropriations Subcommittee on Health, Education, Labor.

Washington seems to be focused on the federal deficit and the national debt, which present their own crises, but the retirement deficit is receiving little attention. The question that must be answered by those of us nearing retirement age, is whether this is a crisis to be solved by the government or by individuals and families. Here are a few suggestions that may help reduce the personal retirement deficit each of us is facing.

Reduce debt

• Sell the home that will not be affordable in retirement.
• Sell the vehicles purchased on credit and buy a less expensive one for cash.

Begin saving every dollar possible by cutting out excessive spending on restaurants, movies and expensive vacations.

Work longer into the future than planned. A few years ago, the average retirement age for men was 62. The new retirement age may be 70 for many workers.

Care for and Maintain your health. This seems like an obvious thing to do, but our financial future could be seriously affected by a serious illness.

No matter what age we are, planning for retirement is absolutely essential. Do you have a strategy for your own retirement? If so, and if it is financially sound, then stick to it. If you don't, then keep in mind that to fail to plan is to plan to fail. But aggressive action, even if late, is better than inaction.