Is the retirement savings crisis overblown?

[REWahoo]

This information goes against the gloom & doom predictions of millions of elderly folks living on the streets once they can no longer work.

New research by two experts at the RAND Corp. and just published by the National Bureau of Economic Research shows that seven in 10 Americans aged 66 to 69 are adequately prepared for retirement.

The Marketwatch article says there is quite a bit of variation in retirement preparation in the age 66 to 69 age group based on a number of factors. For example:

- 89% of those with college degrees are prepared
- 80% of married persons
- 55% of singles
- 29% of single females without a high school education

Of course the financial [-]salesmen[/-] press cannot allow a silver lining to stand untarnished:

The bottom line perhaps is this: It’s quite possible you are well prepared for retirement. You might be among those lucky groups — married and highly educated — that stand a better chance of being prepared. But even if you are, consider the possibility that you aren’t as well off as you might think, especially if you live to 100.

 

[chinaco]

The article says there is quite a bit of variation in retirement preparation in the age 66 to 69 age group based on a number of factors. For example:

- 89% of those with college degrees are prepared
- 80% of married persons
- 55% of singles
- 29% of single females without a high school education

This information goes against the gloom & doom predictions of millions of elderly folks living on the streets once they can no longer work. Of course the financial [-]salesmen[/-] press cannot allow a silver lining to stand untarnished:

The retirement-savings crisis is overblown - Robert Powell - MarketWatch

I don't have too much confidence that the information is accurate.

But, I suppose it could depend on what the definition of "being prepared" means!

I suspect in most cases... prepared means we know what we have and think we can manage it... as long as SS and Medicare is available.

 

[GregLee]

But, I suppose it could depend on what the definition of "being prepared" means!

I guess (from the abstract) that it means continue your pre-retirement level of consumption until death, taking into account that your expenses in retirement will go down, and that if you're a single non-college educated female, you may well die early (which keeps you off the streets).

Powell's reasoning in his conclusion,

The bottom line perhaps is this: It’s quite possible you are well prepared for retirement. You might be among those lucky groups — married and highly educated — that stand a better chance of being prepared.

is rather odd. Being in a lucky group shouldn't lead you to the conclusion that you are well prepared for retirement -- if you have nothing saved, being married and highly educated won't put food on the table.

 

[Midpack]

Seems to contradict most of what we've read over the years, but I hope it's true. Of course we'll all be better off if it is. People here seem well prepared -

 

[Nords]

There's something for everybody here:

According to Hurd and Rohwedder, there are reasons for the disparities between the National Retirement Risk Index, the Scholz research and their work. One, Hurd and Rohwedder use estimated spending patterns based on rates of change in spending as observed in panel data, rather than on the assumption of constant spending or on model-based estimates.
The second difference has to do with mortality. Hurd and Rohwedder said they recognize that a married household will spend less at widowing and they classify some low-wealth households as adequately prepared for retirement because of their reduced survival chances.

So, FIRECalc wouldn't necessarily agree with these guys, but retirees seem able to reduce their spending to live within their portfolios.

I think that could also be interpreted as "living on Social Security"... almost:

We find that 71% of persons in our target age group are adequately prepared according to our definitions, but there is substantial variation by observable characteristics: 80% of married persons are adequately prepared compared with just 55% of single persons. We estimate that a reduction in Social Security benefits of 30 percent would reduce the fraction adequately prepared by 7.8 percentage points among married persons and by as much as 10.7 percentage points among single persons.

 

[chinaco]

This looks like it might be the study....or part of it. One of the authors is Michael Hurd.

http://www.nber.org/chapters/c12431.pdf


The study appears to use a sample for the data set from U Mich HRS and CAMS

Health and Retirement Study


I have not spent time reading it... just browsed it. But one would need to have confidence of the accuracy of the data (from several survey), the way it was put together to produce the studies dataset, the method, and assumptions.

Plus... that people answer the survey truthfully and accurately.

I am sure other professionals will critique the study.... since this will be a much debated subject over the next two years.

 

[Delawaredave5]

Studies generally claiming high numbers of people "unprepared" usually look at income replacement - all/some portion of when you were working.

This article/study focuses instead on consumption replacement - and it makes a big assumption that consumption goes down substantially as you get older.

While I agree that retiree consumption goes down (less active, bunker mentality, etc), I don't want my retirement plan to require my consumption goes down.

 

[W2R]

What percent of Americans can enjoy retirement to age 100? “That's the real measure of saving adequacy,” said Kotlikoff. He said the NBER analysis shows that most people will do OK if they die on time or a bit later, but retirement saving adequacy is about being prepared to live to 100, which you may, said Kotlikoff. “Most people,” he said, “don’t die on time.”

So true, you never know. Most people don't expect to live to 100, but some people do (and hopefully don't run out of money at 95).

 

[W2R]

Studies generally claiming high numbers of people "unprepared" usually look at income replacement - all/some portion of when you were working.

This article/study focuses instead on consumption replacement - and it makes a big assumption that consumption goes down substantially as you get older.

While I agree that retiree consumption goes down (less active, bunker mentality, etc), I don't want my retirement plan to require my consumption goes down.

On the other hand, my income as a retiree will never be anywhere near as much as 80% of my gross income when working, the rule of thumb others sometimes use. It's closer to 50% right now. Yet I am spending more than ever before in my life, and still have lots left over. As a retiree I don't need to save for retirement, I don't have to pay into SS or Medicare, my house is paid off, and my taxes are low. So, I think the general idea of consumption replacement instead of income replacement is sound.

I don't know yet whether or not my consumption will decrease as I age, but I doubt it. I agree, that assumption is pretty sketchy IMO.

 

[packrat44]

New research by two experts at the RAND Corp. and just published by the National Bureau of Economic Research shows that seven in 10 Americans aged 66 to 69 are adequately prepared for retirement


What is their definition of "prepared for retirement"? Sufficient income for one to live at a stantard similar to that prior to reteriment or have just enough to keep one alive?

 

[Purron]

This information goes against the gloom & doom predictions of millions of elderly folks living on the streets once they can no longer work.
The Marketwatch article says there is quite a bit of variation in retirement preparation in the age 66 to 69 age group based on a number of factors. For example:

- 89% of those with college degrees are prepared
- 80% of married persons
- 55% of singles
- 29% of single females without a high school education

Of course the financial [-]salesmen[/-] press cannot allow a silver lining to stand untarnished:

Thanks for the evidence against donning a tin foil hat REW. We need that now a days.

 

[traineeinvestor]

While I agree that retiree consumption goes down (less active, bunker mentality, etc), I don't want my retirement plan to require my consumption goes down.

+1

I have every intention of maintaining consumption levels until deteriorating physical and mental health forces me to slow down.

 

[Alan]

We ER'ed in January 2010.

Our expenses that year were 12.5% higher than in 2009 (2009 was in line with earlier years).

This year, 2011 is looking to be about the same as 2010, 12.5% higher than our pre-retirement expenses.

This is all in the plan to have fun and the increase is all down to our travels. If we have a major dip in finances then we can easily cut back, and still have fun.

 

[Koolau]

We always believed that we were OVER preparing for retirement. Turns out that we may not have been all that "over". The belt and suspenders approach has served us well since our post w*rk spending has dramatically increased - much to our surprise. For a while, i chalked up the extra spending to one-time events (e.g., we have moved and remodeled twice in the past 4 years). Now, I'm beginning to believe that all the "one-time" things are just "different" things than we expected. (Oh, yeah. Had a daughter get married in there someplace.) So perhaps we have actually established our new spending level and it IS higher than we planned for.

So unless the people referenced in the article are very accurate in their post-retirement planning, they STILL may come up short. I never bought the "80%" rule and now I have anecdotal (and personal) experience suggesting it just isn't (always) so. Naturally, YMMV.

 

[Mulligan]

This information goes against the gloom & doom predictions of millions of elderly folks living on the streets once they can no longer work.
The Marketwatch article says there is quite a bit of variation in retirement preparation in the age 66 to 69 age group based on a number of factors. For example:

- 89% of those with college degrees are prepared
- 80% of married persons
- 55% of singles
- 29% of single females without a high school education

Of course the financial [-]salesmen[/-] press cannot allow a silver lining to stand untarnished:

RE your information goes along with advice from my first boss that I got from him over and over. He would frequently say "remember two can live cheaper than one, but three cant live cheaper than two". He was obviously referring to the financial benefits of having no children.

 

[old woman]

The married might feel more prepared because they don't think about what the income does in a divorce or after one dies.

A married couple each getting SS might get around 40K total then one dies and they are down to about half. If the one to die first had a pension the remaining one might lose some or all of that too. Expenses will go down some with one less person but not be half as much.

Some people don't plan to have much income in retirement, one coworker is 54 with $200.00 in her old 401K and not saving in ours yet. She might roll it in but my guess is she will spend it. Her retirement plan is to get her son to let her move in and live on SS. She earns $15.50 a hour and it is the best job she has ever had. A reasonable retirement plan might be low income housing and living on SS.

 

[Tadpole]

If you plan well you can end up like me. If I were to die any time after April 5, 2012, my husband's yearly income would actually go up $400/mo. if he claimed my SS. I have not claimed it and he will be at his full retirement age. My SS makes up for his loss of 50% of my pension and his SS. By the time my TIAA payout annuity ends, he will be over 70 1/2 and the rest of the deferred money will be dumping. So all looks pretty good on his end (global economy willing). I have advised him to only use the excess money, as needed, to make up for inflation and to reinvest the remaining money.