43% not saving for retirement

[jIMOh]

I find that number high and hard to believe...
but here is the article

Most Americans still unprepared for retirement - survey - Mar. 9, 2010

 

[W2R]

It is much lower than I would have guessed. Even in my (former) government job, most of my co-workers claimed they were saving little if anything for retirement when the topic came up in conversation. They claimed their expenses were too high to save anything.

I tried to help a few of them "see the light" but I doubt that I had any effect. Either they were young and viewed retirement as something to worry about later, or else they had kids in college and "couldn't" save anything. I managed to still max out my retirement accounts while putting my kid through college - - but then she knew that all I could afford was a state school and she would have to work part time.

 

[travelover]

Someone posted this at Bogleheads, too. The article really doesn't tell you much without some age related statistics to go along with it.

 

[MasterBlaster]

The Same Theme

This and debt releted threads on this forum and others have the same theme...

We B great
They B stupid

Let me tell U again how I B and how U not B

 

[seabourne]

I don't know - to some extent it makes sense that the numbers climb - people who had only a little savings may well be the first to have to tap it due to unemployment, other issues, etc. More money tends to also have better benefits in job, thus protecting the savings that was easier to set aside in the first place.

The other issue that I always have with these articles is the utter uselessness of them given the large number of defined benefit setups out there. Not a lot in private practice any more, but there are huge numbers of government employees that might be quite well prepared for retirement with less than $50k in cash depending on benefits, prepaying mortgages, etc. I'm in private sector and doing far better on savings than most, but if I payed off my mortgage with that savings, I'd be left with less than half of my savings, and from the perspective of this article, would drastically drop in their estimation without a comporable change in true financial picture.

Anyway, interesting, but always leaves me with a "lies, d@mn lies, and statistics" taste in my mouth.

 

[rescueme]

It depends what you define as "savings". Folks my DW/me worked with many who invested in RE (apartment buildings). Regardless of the current value of the RE, they looked at the monthly net revenue stream to fund their retirement.

Others, who take advantage of such things as a reverse mortgage (I would not, but I'm sure there are many who would) to help fund them in retirement.

If you're going to just divide the total amount of deposits in savings/investment vehicles and divide it by the current number of active employees, the result is inconclusive, IMHO.

 

[MasterBlaster]

yes "saving" is defined as money in no-risk deposit accounts. "Savings" are defined as distinct from "investments" which can fluctuate in value.

I suspect that many on this forum have low savings but at least some degree of investments.

So I agree, The official savings rate is not a very meaningful statistic.

 

[eridanus]

What travelover wrote. How many of those with less than $10,000 are in their early to mid-20s?

 

[Bimmerbill]

I don't have much in savings (but working on getting to 3-6 months emergency fund) but save 18% of my salary into my TSP.

I really don't think it would be possible to max it out, including a ROTH. As my salary increases, I'm hoping to increase my % by 1 point each raise until the combination of % and salary = max.

Tho, but then maybe I'll be 50 and will have the "catch up" provision to deal with.

All this assumes we fed workers don't get hammered by negative public sentiment and have out pay frozen.

 

[freebird5825]

Here ya go, folks...right out of the horse's mouth...the source of the data cited in the article.
Retirement Confidence Survey—2010 Results | EBRI

Some sample population age data is found here
http://www.ebri.org/pdf/surveys/rcs/2010/FS-04_RCS-10_Age.pdf

Excerpt from http://www.ebri.org/pdf/PR.868.9Mar10.RCS-10.Final.pdf

"The survey was conducted in January 2010 through 20-minute telephone interviews with 1,153 individuals (902 workers and 251 retirees) age 25 and older in the United States. Random digit dialing was used to obtain a representative cross section of the U.S. population. To further increase representation, a cell phone supplement was added to the sample."​

I haven't read the entire report yet. I'm on a short decluttering break right now.

 

[Koolau]

Anyway, interesting, but always leaves me with a "lies, d@mn lies, and statistics" taste in my mouth.

Or my favorite. Statistics are like a bikini. What they reveal may be very interesting, but what they conceal may be more significant.

But seriously, I'm surprised the number saving for retirement is that high. Most folks I knew spent very little time planning their retirement and saved very little even though our company provided a number of vehicles to do so. The one thing I and my coworkers did have was a pension which became vested after 15 years. While it wasn't generous by gummint standards, it was enough (with SS) to keep the grasshoppers (as opposed to us ants) from starving during retirement. I just always wondered how those without significant savings would make the transition from spending every penny of their relatively decent salaries (and perhaps the money they borrowed) to a life style funded by only 2 legs of the retirement stool. Most simply said they would w*rk until they died. (Some of them did, too.)

 

[rescueme]

(902 workers and 251 retirees)

Well that skews the stats even more - that is including retirees.

IMHO, the idea that you must save/invest for retirement is a fairly recent one.

My parents/grandparents did not (they had pensions). One is still alive, and collecting SS/pension.

My DW/me only started saving in our mid-30's (we're both 62) when our respective pensions (e.g. defined benefit programs) were eliminated and replaced with the "superior " 401(k) plan.

For me, that makes the "study" even more questionable.

 

[Rustic23]

from ebri.org survey

"In theory, the weighted sample of 1,153 yields a statistical precision of plus or minus 3 percentage points (with 95 percent certainty) of what the results would be if all Americans age 25 and older were surveyed with complete accuracy. There are other possible sources of error in all surveys, however, that may be more serious than theoretical calculations of sampling error. These include refusals to be interviewed and other forms of nonresponse, the effects of question wording and question order, and screening. While attempts are made to minimize these factors, it is impossible to quantify the errors that may result from them."

That is a lot of possible errors for not a lot of people. Just how do you minimize failure to take survey? This is one of those surveys that IMO tries to answer too many questions with not enough information. I am not sure I trust "In theory". "In Theory" always works on paper.

 

[rescueme]

"In Theory" always works on paper.

Here's some reality; in 100 years, we're all dead ...

No theory at all.

 

[Texas Proud]

One of the problems with some is that they do not see living to retirement... I would talk to my sister about savings... she said her husband's thinking was he would be dead before he was able to retire... since his father died early... and his mother did not make it much past retirement, and this was a history in his family... I can see his thinking...

But what about my sister

Well, they did save.. and he is still alive... and they are going to retire soon (forced)... but all in all things worked out...

 

[jimnjana]

I think that in certain demographics the number is much lower. The young service members that I have prepared taxes for, maybe 2 out of 10 have contributed to the TSP program. Young(20s-30s)married couples the numbers are even worse, not so if both spouses are working, then the number probably approaches 40%. Seems that once kids are HS age, parents start saving. Now, single officers probably have an IRA or TSP in 60% of the cases or more. The young (60s-early 70s) retired people I have done returns on almost all have either a 401k, IRA, or both.

 

[ziggy29]

I find that number high and hard to believe...
but here is the article

Without factoring in the number of people who can expect secure pensions that exceed their expenses, 43% is a "shock number." Maybe it's not the best thing to do, but someone with $50K of expenses looking at $60K in COLA'd pensions on retirement can realistically save practically $0 and still retire. And yet including them in the data set of people who haven't saved for retirement really distorts reality.

 

[Walt34]

Without factoring in the number of people who can expect secure pensions that exceed their expenses, 43% is a "shock number." Maybe it's not the best thing to do, but someone with $50K of expenses looking at $60K in COLA'd pensions on retirement can realistically save practically $0 and still retire. And yet including them in the data set of people who haven't saved for retirement really distorts reality.

That might part of it. I'm one of those with a DB COLA'd pension of the type that "they don't make 'em like that anymore". Without it I would never have dared to retire; it would have been stupid to do so, as we certainly don't have the investments/savings to live on independently for the rest of our lives. I suppose if we went back to the "early poverty" days of our early 20's we could make it last maybe 15 years but that would be at subsistence living.

But we do know people our age who don't have much if any pension coming to them, no savings at all, and they are wholly unprepared financially for retirement. I guess they just don't want to think about it, like some people never make funeral arrangements. Others are in complete denial about what it will cost. Those will be the ones who work until they die or are simply physically unable to work.

 

[ziggy29]

But we do know people our age who don't have much if any pension coming to them, no savings at all, and they are wholly unprepared financially for retirement. I guess they just don't want to think about it, like some people never make funeral arrangements. Others are in complete denial about what it will cost. Those will be the ones who work until they die or are simply physically unable to work.

Those are the people the article should be highlighting -- but the headline seems to imply "43% have an ice cube's chance in hell of retiring." But if they are fortunate enough to have a solid pension waiting for them or they are still in their 20s (this study looked at ages 25+), that may not be true even if they have no savings.

It really goes back to what we've often said about these surveys about how much people have saved for retirement in order to assess "readiness" for it: not considering pension status fatally flaws these results to the point where they are unusable at best and misleading at worst.

 

[Leonidas]

I guess they just don't want to think about it, like some people never make funeral arrangements. Others are in complete denial about what it will cost. Those will be the ones who work until they die or are simply physically unable to work.

Dealing with financial things is a huge psychological stumbling block for quite a few folks. Like my BiL, a brilliant engineer who makes millions upon millions for his employer by running a unit of the company that writes contracts denominated in the billions. But by his own admission he has a complete mental block when it comes to numbers if there is a "$" in front of them. We've talked about the financial issues dealing with retirement a few times and his eyes just sort of glaze over and the conversation turns to other things.

My pension system has had a CFP on staff for about ten years now, and he is always organizing classes to help members deal with those nasty numbers with $ in front of them. Recently he has branched out a bit and created a class dealing with the psychological issues of retirement. The instructor was the head pshrink from the PD. In his after-action report he said that the longer he works in this field the more convinced he is that "...[FONT=Arial, Helvetica]it is obvious to me there is a psychological component to many of the financial issues we face in life."

The first couple of times I dealt with the guy in person I was not overly impressed. I came in and laid out my plans and numbers and he was all "Yeah, I think you got it figured out." I challenged him a bit by requesting him to work up some things that required him to give me specific numbers, and I found that we agreed to within a few cents most times. So, maybe I did have it all figured out. I've since determined that it's not that I'm a financial genius, nor is he a "yes man", but that I'm different than so many of his clients because I overcame the psychological barriers to get to the point where I could do my own planning.

It's obvious as I go back and re-read some of his articles that he is constantly dealing with clients who have some "issues" with money. And it's not just retirement stuff, but some basic things like debt. This from a recent article telling members to come see him early in the process of digging themselves out of a bottomless pit of consumer debt. Again, the psychological aspect comes to the forefront: [/FONT]

[FONT=Arial, Helvetica] Most of us have struggled at some point in our lives with debt. We have allowed our budgets to spin out of control from time to time. It is obviously one of life’s experiences many of us have in common. But despite the commonality, this is one subject that is clearly not a popular topic for discussion. Men in particular tend to avoid talking about it.

[/FONT][FONT=Arial, Helvetica]We get little or no personal finance training while in high school or college, then we enter the workforce and pretend that budgeting is a skill everyone is born with. It’s like getting up and walking on two legs; we all do it naturally and instinctively. Based on that assumption, we wouldn’t need to talk about our finances. [/FONT][FONT=Arial, Helvetica]The fact is, people all across the country actually do need assistance with their finances. These things do not come naturally for most of us.[/FONT]

If he knows it, you can bet that the big money boys know it and they have calculated that factor in on their sales pitches. "They're afraid to say they don't know, so hit them with BS to confuse them even more and then offer the product as the answer to all their problems."

I guess it's not all that amazing that so many people have decided to not participate.

 

[kyounge1956]

(snip) The other issue that I always have with these articles is the utter uselessness of them given the large number of defined benefit setups out there. Not a lot in private practice any more, but there are huge numbers of government employees that might be quite well prepared for retirement with less than $50k in cash depending on benefits, prepaying mortgages, etc. (snip)

I haven't read the original article yet—it may well be as useless as you think, but if so, I doubt that it's because it failed to take public pension systems into account.

I'm an employee of my local city government who will be receiving a DB pension, and $50K of retirement savings in addition to even my maximum possible benefit would be totally inadequate. I keep hearing about these gold-plated public-employee pensions that pay as much after retirement as was earned before, with full COLA and subsidized medical insurance on top of that, but I certainly don't have that sort of a pension coming, and I wonder how many public employees actually do. Don't get me wrong, I'm extremely glad I will have that pension coming, because without it I'd probably never be able to retire at all, because I procrastinated so long before I got serious about saving. But even if I stick around for the maximum benefit at 30 years of service, it won't cover all my expenses, even to start off with, it isn't fully COLA'd, and it doesn't include medical insurance. And my expenses are not that high—I'm single, will be debt-free, will relocate to a lower-cost-of-living area at retirement, and don't plan any expensive pursuits like world travel.

 

[eridanus]

I wonder how many public employees actually do. Don't get me wrong, I'm extremely glad I will have that pension coming, because without it I'd probably never be able to retire at all, because I procrastinated so long before I got serious about saving. But even if I stick around for the maximum benefit at 30 years of service, it won't cover all my expenses, even to start off with, it isn't fully COLA'd, and it doesn't include medical insurance.

Should've started service in another city.

Houston has the this pension annuity:

https://login.hmeps.org/WebBenefitCalc/Public/WebModules/WebBenefitCalculator/Entry_Service.aspx

So, 30 years, with a final average pay of $60,000, comes to $53,000 at age 55 (if starting at age 25). Medical is offered at the same group rate that the city employees pay. It is COLA'ed but only when the fund can sustain the increased payout.

That's a lot better than non-pension people can do, even when figuring the increased pay that private sector employees make. Of course, you have to stick with an employer for 25 years.

 

[Leonidas]

Medical is offered at the same group rate that the city employees pay.

Is that for life? I thought all city employees had the same health plan and there were different rates for active and retired. HPD allows an exchange of accumulated time to create a bank that is used to pay health care in retirement, at the active employee rate, but that is limited to 5-years.

 

[eridanus]

Is that for life? I thought all city employees had the same health plan and there were different rates for active and retired. HPD allows an exchange of accumulated time to create a bank that is used to pay health care in retirement, at the active employee rate, but that is limited to 5-years.

You're correct; my mistake. There are different rates for active and retiree. It looks like retirees pay ~4.5x what active employees pay. The HMO retiree contribution (the PPO is more for both groups) for those <65 is ~$150/month.

It appears to be for life. The 5 year "bank" may be only for the top-up.


I should add that new Houston employees have a lower, tiered, payout percentage.

 

[kyounge1956]

Should've started service in another city.

Houston has the this pension annuity:

https://login.hmeps.org/WebBenefitCalc/Public/WebModules/WebBenefitCalculator/Entry_Service.aspx

So, 30 years, with a final average pay of $60,000, comes to $53,000 at age 55 (if starting at age 25). Medical is offered at the same group rate that the city employees pay. It is COLA'ed but only when the fund can sustain the increased payout.

That sounds like a pretty good deal, but I'd have to move to Texas

The Houston calculator wouldn't let me in, so I put the same parameters in the calculator for my system. With 30 years of service and $60K earnings, my pension would be $36K/year, partially COLA'd. For those who retire before Medicare eligiblity, retiree medical coverage is available (at I think lower rates than in the open market but more than employees pay).

That's a lot better than non-pension people can do, even when figuring the increased pay that private sector employees make. Of course, you have to stick with an employer for 25 years.

I wonder...City employees here pay 8.03% of our paycheck into the pension system, with an equal amount added by employer, and IIRC this amount is considered to grow at 5% annually (for purposes of calculating a lump sum amount for some of the payout options). Right now my accumulated contributions amount to between $155 & $160K. With that kind of money, could I buy an annuity that would pay the same as my pension does? Is my pension really better than other people could do if they saved 8% as soon as hired, with an employer match (which I assume could be done in most 401k plans), or is it just better than most people actually do do, because they save too little, too late, and/or invest unwisely?