Is there really a retirement savings crisis?

[mickeyd]

I found this to be a comprehensive study on this often-discussed topic.

Declining Social Security replacement rates and employers’ shift from defined benefit plans to 401(k) plans have led to 32% of people aged 51 to 61 being at risk.
That’s compared to 1992, when only one-fifth of those households were at risk of coming up short in retirement, according to the study, “Is There Really a Retirement Savings Crisis?

Factors contributing to lower Social Security replacement rates include the increase in the average retirement age from 65 to 67.
1n 1992, the average retirement age for people between ages 51 and 61 was 65.2 years, but by 2004 it went up to 66.
The problem will likely worsen.
Currently, 35% of early baby boomers born between 1946 to1954 are at risk, as are 44% of late boomers born between 1955 and 1964. Nearly half of Gen Xers face the possibility of a paltry retirement thanks to smaller Social Security benefits and increasing age longevity.

http://www.investmentnews.com/assets/docs/CI2436481.PDF

 

[youbet]

That was a good read that expressed interesting viewpoints. I was especially amused by a term they used: "decumulate."

"Hey Honey, lets decumulate some of our wealth by going out to dinner tonight!"

 

[Nords]

Is there really a retirement savings crisis?

Apparently not, because the media would have us think that we'd really prefer to keep working for the rest of our lives to avoid having to deal with those icky unfulfilling retirements.

Maybe the "savings crisis" workers should partner up with the "wannabe fulfilled" workers.

 

[pedorrero]

To the extent that Social Security and Medicare are under (or un-) funded to the tune of $40 or $50 trillion (that's "trillion" with a "T"), depending on whose figures you believe, I would say that qualifies as a "problem". Truly private plans may not be as bad off, but many state or local government's plans probably are pretty bad off too.

 

[ESRBob]

I don't know how many families/people are at risk (a lot I suspect) but I am consistently amazed at how well-prepared a lot of Americans are for retirement. I've been massaging some Federal Reserve Survey of Consumer Finance data and finding that some 25% of American families headed by someone between 45 and 64 could sell the house, hold a garage sale and semi-retire today earning part-time wage income matching their eventual Social Security benefits and live at the national median income (I'm assuming 48k per year -- it was 46k and change in 2005 but I can't find a newer figure)

The assumptions are that the least well-off of this group would have about 600k of assets, would draw down 26k a year from that and earn 22k in salary income. As this data is built around families, assume two breadwinners earning 11k a year each (eventually replaced by SS) or $220 a week. Do it by a clever hour or two a week doing something high value, or by 9 hours a week earning $25 an hour or whatever. It isn't a lot of time or work or money to earn if it means you've been able to quit the career work grind.

In any case, I am intrigued by how many pre-retirement age people seem to have their acts together financially, according to the Fed's own data...

 

[W2R]

I find articles of this type to be unrealistic when financial preparedness for retirement is assessed by % of present income available in retirement, instead % of projected retirement expense.

Many of us who are in our fifties do not come anywhere near spending what we make, because we are dutifully stashing it away for retirement. Frankly, I wouldn't know what to do with 70-80% of my present income and no house to pay off, and no retirement to fund.

My retirement goal is about 30% of my current pay, and I will live a lot better on that than I ever have while working. Most authors of this type of paper cannot seem to understand that concept.

 

[chinaco]

It could depend on how one defines standard of living! If they are talking mainly non-discretionary spend... that could be the case. I believe that the discretionary spend is where most people get into trouble. If discretionary spend also includes over buying houses and cars (more than reasonably needed)... It probably is very true.

Most Americans seem to borrow quite a bit of money for crap (or more than they need). So if standard of living means the same spend (amount/rate) per year... they may be in trouble. I have to believe that people (on average) are spending more than they make (looking at the debt). Of course, it does catch up with people. They have to pay the loan back with interest. Which means over the longer haul, they consumed less and paid interest for the opportunity to consume items earlier than they could otherwise afford.
I suspect that people tend to spend less when they get older (on average). I know that when I was younger, I spent more money on crap. Now I spend less, even though I earn more. And if one also considers that expense like college for the kids (and mortgage) are no longer expenses... maybe their non-discretionary spend is much less.

The simplistic view of standard of living (same spend) is where the complexity lies. Is your standard of living less if you live in a $1mm house versus a $250k house (exclude places with extreme real estate prices). Some might consider so. But I would have the same standard regardless of the amount of empty house I sleep in.