Most Americans unprepared for retirement

[omni550]

From today's NYT article http://www.nytimes.com/2012/04/28/opinion/nocera-my-faith-based-retirement.html?src=recg

"According to the Employee Benefit Research Institute, for instance, only 22 percent of workers 55 or older have more than $250,000 put away for retirement. Stunningly, 60 percent of workers in that same age bracket have less than $100,000 in a retirement account. Ghilarducci told me that the average savings for someone near retirement in America right now is $100,000."

omni

 

[LRDave]

I'm shocked, shocked I tell you............
Hilarious Casablanca Clip - YouTube

 

[MichaelB]

A recent thread on the same study http://www.early-retirement.org/forums/f28/boomer-retirement-market-61095.html

 

[Steel Rain]

What is interesting about the article is the belief that pensions are inherently better. I do not think this is true. Considering how many pensions get clobbered when the firm in question goes belly up. I dont have a pension at all, and Im very glad that I dont. I do not trust corporations to be there when I need them.

Steel

 

[Independent]

This is an interesting stat from the EBRI study that I haven't seen before:

Regardless of those retirement age expectations ... half of current retirees surveyed say they left the work force unexpectedly due to health problems, disability, or changes at their employer, such as downsizing or closure.

Here's the original:

The RCS has consistently found that a large percentage of retirees
leave the work force earlier than planned (50 percent in 2012) (Figure 33). Many retirees who retired earlier than
planned cite negative reasons for leaving the work force, including
health problems or disability (51 percent);
changes at their company, such as downsizing or closure (21 percent); and
having to care for a spouse or another family member (19 percent).
Others say changes in the
skills required for their job (11 percent) or
other work-related reasons (23 percent) played a role.
Some retirees mention positive reasons for retiring early, such as being able to afford an
earlier retirement (33 percent) or wanting to do something else (28 percent), but just 8 percent offer only positive
reasons.

http://www.ebri.org/pdf/briefspdf/EBRI_IB_03-2012_No369_RCS2.pdf

 

[Dog]

Read the comments following the article. Interesting the blame being tossed around about a failed society, 401k being a failed experiment, etecetera. Only one person commented on the fact that the guy raided his 401k (STUPID) and the impact of the divorce. Add to that his failure to plan. Easier to blame everything else rather than take responsibility.

 

[Chuckanut]

The author admits have a "tech-laden" portfolio. He seems an intelligent fellow. Had he never heard of diversification? This seems like a self inflicted wound to me.

And taking money out of his 401K to fix up a house he bought knowing it needed work? Another self-infliced wound.

As for the divorce, that may or may not be his fault. In most states your spouse can divorce you for no reason whatsover and there is nothing you can do about it. There is a 50% chance he had no choice in the matter.

 

[MichaelB]

The EBRI study is quite interesting. After reading it my conclusions are different. Note - it is sponsored by companies that provide financial products and services.

The study is done annually. A comparison with recent years shows that attitudes and expectations are improving. They fell dramatically as a result of the recession and are not yet back to pre-'08 levels , but they definitely are improving.

 

[photoguy]

Is retiring on mostly SS so bad? I'm not sure what the average payout would be for a couple but if it is $2 - $3k per month that's seems like quite a bit. I'm sure many on this board have lower expenses than that.

 

[W2R]

Is retiring on mostly SS so bad? I'm not sure what the average payout would be for a couple but if it is $2 - $3k per month that's seems like quite a bit. I'm sure many on this board have lower expenses than that.

The average monthly SS retirement check in March, 2012 was $1232.

Monthly Statistical Snapshot, March 2012

 

[eytonxav]

I am pretty skeptical of some of the stats thrown out the past few years about how few $s folks have saved for retirement. Where is this data coming from (survey, investment firms, ??). I suspect the picture is a bit better than made out to be.

 

[ziggy29]

I am pretty skeptical of some of the stats thrown out the past few years about how few $s folks have saved for retirement. Where is this data coming from (survey, investment firms, ??). I suspect the picture is a bit better than made out to be.

Not to mention that they don't really take whether or not you have a DB pension into account. A 60-year-old with only $100K in retirement savings with a $50K annual pension is a far cry from a 60-year-old with $100K and no pension at all.

 

[powerplay]

Not to mention that they don't really take whether or not you have a DB pension into account. A 60-year-old with only $100K in retirement savings with a $50K annual pension is a far cry from a 60-year-old with $100K and no pension at all.

Very true, I think the article tries to focus on 'the sky is falling' to get people excited about the issue. The person with a fairly secure pension and especially one with a COLA is in a far better position with the smaller savings.

 

[Silver]

These articles seem to assume that the only retirement savings people have are in work-related retirement accounts such as 401K's. I always invested enough to get the company match, but because there were other options that offered better return on investment I had less then half of my total retirement savings in my companies' 403b. Assuming that the only retirement monies available are in a company sponsored plan seems short-sighted, and just an easy statistic to obtain.

 

[nun]

What is interesting about the article is the belief that pensions are inherently better. I do not think this is true. Considering how many pensions get clobbered when the firm in question goes belly up. I dont have a pension at all, and Im very glad that I dont. I do not trust corporations to be there when I need them.

Steel

Many on this forum will agree with you. I also like 401k, 403b etc because I have enough in them to easily fund my retirement. I earn far more than I spend and I'm single and don't have children so I can save lots and the flexibility of the a DC plan will let me ER. However, many 401k participants are disappointed with them. They might not have contributed enough and/or they invested recklessly so that their balances are low. So for them the 401k has not been a success. Also the shift of retirement saving from DB employer funded pensions to DC plans, where the employee pays most of the contributions, without a proportional increase in employee salaries is one of the main reasons the middle class have seen their debt load increase and their retirement assets decrease. They have only been able to keep their standard of living by taking on debt.

Of course you can cry "caveat emptor", but that doesn't solve the problem of providing for retirement income. If the numbers in the article are correct the last 30 years of retirement funding have been a stunning failure. It might be interesting to look at what the UK is doing in the DC retirement field . The UK Government has just introduced the National Employment Savings Trust, NEST. This is a mandatory DC plan. If an employer doesn't offer a DB plan or a DC plan that is at least as good as NEST then the employee is automatically enrolled in NEST. There are mandatory employee AND employer contributions. If the employee does not want to participate they can opt out.

Also the UK has recently changed its state pension benefits and removed the dependence of the amount of the pension on your salary history. Instead it's just calculated on how long you've worked and the pension has been set so that most people will see an increase in their pension. Thus the low paid get a big pension increase and those that make the most will see a reduction in their state pension. These reforms have been brought in by a Conservative Government.

 

[73ss454]

Is retiring on mostly SS so bad? I'm not sure what the average payout would be for a couple but if it is $2 - $3k per month that's seems like quite a bit. I'm sure many on this board have lower expenses than that.

I'm not one of them. We seem to be spending about 6K+ a month. If we both take SS in Dec of this year when DW turns 62, I should get about 2050 and DW about 850 or a little less. I'll be 63 and 8 months at that point. So we still have to come up with 3K or so a month to live the way we want.

The whole thing comes down to how much you want to spend and DW is good at it.

 

[almost there]

"companies that provide financial products and services"
That's a big part of it. No matter how much you have someone is just waiting to tell you its not enough. And to allow them to handle your entire retirement for you.
BTW, do they mention how much a person needs? Or throw out the old plan to live to 110! people are living longer these days...... LOL LOL

Added
Maybe folks were not paying attention when most megacorps cut pensions in half or all together in the late 90's? Fewer and fewer folks will be talking pensions on this forum going forward. At least not as a major part of their retirement portfolio. Aside from Gov. workers, most seem to take the lump sum for long term safety anyway.

 

[Independent]

I am pretty skeptical of some of the stats thrown out the past few years about how few $s folks have saved for retirement. Where is this data coming from (survey, investment firms, ??). I suspect the picture is a bit better than made out to be.

Not to mention that they don't really take whether or not you have a DB pension into account. A 60-year-old with only $100K in retirement savings with a $50K annual pension is a far cry from a 60-year-old with $100K and no pension at all.

Very true, I think the article tries to focus on 'the sky is falling' to get people excited about the issue. The person with a fairly secure pension and especially one with a COLA is in a far better position with the smaller savings.

Yes to all.

It seems obvious that the EBRI or some similar group could interview people turning 62 and get a better picture of finances.

What is your:
SS benefit at at 66?
Total of stocks, bonds, CDs, etc?
Pension (COLA and non-COLA separately)?
House, equity, mortgage balance, payment?

(Note that if you've got the SS benefit at 66, then you also know the average of the top 35 years of income.)

I'd like to see the detail for 100 or so US families. I'm sure that some are in bad shape, but I'd like to see the distribution.

Maybe somebody here has a source.

 

[LOL!]

OK, most are unprepared for retirement, yet folks still keep retiring somehow just like they always have. How is that possible? (That's a rhetorical question, but fill free to answer.)

 

[Koolau]

What is interesting about the article is the belief that pensions are inherently better. I do not think this is true. Considering how many pensions get clobbered when the firm in question goes belly up. I dont have a pension at all, and Im very glad that I dont. I do not trust corporations to be there when I need them.

Steel

Steel, I don't disagree about the various negative issues with pensions, but typically, in the USA at least, they are covered (to some extent) by the Pension Benefit Guarantee corp. Welcome to PBGC Admittedly, the PBGC doesn't keep a corp. from freezing pensions and either providing a DC type plan (or not providing a replacement plan). So, you are correct that one should never totally depend upon a pension for all of one's retirement. Having said that, one can have at least some confidence in them if provided. Having the choice of a pension or not, I'd go with having a pension (and I do, thank God and Megacorp.) YMMV

 

[MichaelB]

Yes to all.

It seems obvious that the EBRI or some similar group could interview people turning 62 and get a better picture of finances.

What is your:
SS benefit at at 66?
Total of stocks, bonds, CDs, etc?
Pension (COLA and non-COLA separately)?
House, equity, mortgage balance, payment?

(Note that if you've got the SS benefit at 66, then you also know the average of the top 35 years of income.)

I'd like to see the detail for 100 or so US families. I'm sure that some are in bad shape, but I'd like to see the distribution.

Maybe somebody here has a source.

The Census Bureau Current Population Survey has good data. Their income statistics page here Income Statistics - U.S Census Bureau
Here's a table with income distribution and home ownership breakdown by age PINC-01--Part 1
The BLS Consumer Expenditure Survey is also rich in data for this type of analysis. See it here Consumer Expenditure Survey I can't link to specific data points but Table 4500. Selected age of reference person: Average annual expenditures and characteristics gives a very detailed breakdown of income and expenditure by age group.

 

[Independent]

The Census Bureau Current Population Survey has good data. Their income statistics page here Income Statistics - U.S Census Bureau
Here's a table with income distribution and home ownership breakdown by age PINC-01--Part 1
The BLS Consumer Expenditure Survey is also rich in data for this type of analysis. See it here Consumer Expenditure Survey I can't link to specific data points but Table 4500. Selected age of reference person: Average annual expenditures and characteristics gives a very detailed breakdown of income and expenditure by age group.

That's good stuff. (I think lots of people could use the CEX for personal budgeting.)

I can see that the median income for married couple families, ages 70-74, was $48,443. (From other sources, maybe $28k of that is SS.) FINC-02--Part 10

Then I can see that about 75% of two person households ages 75+ owned houses without mortgages, (60% for ages 65-74).
And the market value of those houses was over $200k.
ftp://ftp.bls.gov/pub/special.requests/ce/CrossTabs/y0910/sizbyage/atwo.TXT

I'd estimate from other sources that the median couple had an income of about $70k when they were working.

So that gives a 70% replacement ratio, with no more mortgage payments for the median.

When I compare detailed spending in the CEX between the 75+ couples and all couples, I see reasonably comparable spending.
The older people spend less on housing (no mortages), taxes, and transportation. But, more on health care.

That totals up to no "crisis" in retirement for the average retired couple.

But of course that doesn't say that people who are currently 60 can expect the same result. And, it doesn't say anything about the extremes.
The NYT article is about a well-above-average worker who might retire on just SS plus home equity. I'd like to see a 2x2 table for 60 year olds that addresses that.

 

[ejman]

I'm trying to understand why 401K's get blamed as the culprit in this type of situation. I ER'd at 52 in January 2003 largely because I (as well as my wife) contributed the maximum we were allowed, along with employer matches to diversified portfolios. Sure, taking the 401k money OUT for whatever reason will diminish the pot latter on. Investing it foolishly will accomplish the same. Take enough out and it will be GONE. Hello! is this a mystery?

So is it the cars fault if it runs off the road when taking a 45 MPH turn at 75 in the rain and sleet? We are turning into an interesting society to say the least.

 

[Khufu]

What is interesting about the article is the belief that pensions are inherently better. I do not think this is true. Considering how many pensions get clobbered when the firm in question goes belly up. I dont have a pension at all, and Im very glad that I dont. I do not trust corporations to be there when I need them.

Steel

It has happened that pensions have been clobbered, for airline pilots, for example. However, I don't think the problem is as pervasive as you believe. Recently read that in 2009, 84% of the pensions paid by the PBGC received 100% of the money due. The presence of the PBGC has reduced counter-party risk on corporate pensions substantially. I don't personally know anyone who has lost a corporate pension, but I do know several people who have outlived their money. So, I believe that the longevity risk is the greater of the two.

 

[rescueme]

I'm trying to understand why 401K's get blamed as the culprit in this type of situation.

Because you/me, and most folks on this board used our respective 401(k)/IRA's in the "proper manner" to prepare for retirement.

For most folks, the idea of making your own decisions for your financial future scares them, and rather than make a bad decision make none at all.

At least with a defined benefit plan (e.g. pension), all that decision making is done by another, with a proposed guaranteed benefit - all without not having to take a penny out of your paycheck.

DW/me had pensions in the early days, later replaced with 401(k)s (along with respective IRA investments). We're doing much better than what was anticipated at retirement with those early pension benefit projections. We have no regrets, but we also realize that we're unusual (just call us "unique" )...