U.S. Retirement Catastrophe Looming?

Mar 20, 2013 by

Retirement Ahead road sign

Can Americans Retire?

The Employee Benefit Research Institute just released the results of its annual Retirement Confidence Survey. Folks, as a society, Americans are in a heap of trouble.

Who Is EBRI?

First, what is the Employee Benefit Research Institute? From its website:

The mission of the Employee Benefit Research Institute (EBRI) is to contribute to, to encourage, and to enhance the development of sound employee benefit programs and sound public policy through objective research and education.

And here’s what EBRI does:

EBRI was founded on four points of purpose:

  • To conduct, and to encourage others to conduct, research relating to employee benefit plans, whether governmental, private, or otherwise.
  • To assemble and disseminate information on employee benefits, by publication or otherwise, to the general public, including interested organizations, both private and governmental.
  • To sponsor lectures, debates, roundtables, forums, and study groups on employee benefit plans.
  • To carry out all such activities as a research and educational organization.

EBRI’s Retirement Confidence Survey

You’ll find an executive summary and links to some fascinating Fact Sheets derived from EBRI’s Retirement Confidence Survey on this website page. Because I like pictures, I’ve picked a few to highlight here. For example:

Table: Total Worker Savings and Investments

From the EBRI 2013 Retirement Confidence Survey

Here’s what particularly strikes me about this data:

  • 28% of workers have less than $1,000 saved.
  • 57% of workers have less than $25,000 saved. This compares to 49% in 2008.
  • Only 12% of workers have $250,000 or more saved.

Here’s another:

Chart: Workers' Calculation of Retirement Savings Needed

From the EBRI 2013 Retirement Confidence Survey

The item that jumps out here for me is that nearly one-third of workers, over the four surveys depicted, have judged their retirement savings requirements to be less than $250,000.  And that’s for a “comfortable retirement.” Wow. Perhaps these people are planning to work until age 70+—which is a fine choice, as long as one’s health holds out—but I think a more likely explanation is denial or a math skills deficit.

As a quick example:

→ Say you’ve got a nest egg of $250,000 earning 3% annually

→ When you retire, you need to withdraw $25,000 annually from your savings to supplement Social Security and live “comfortably”

→ Your cost of living inflates by 2% annually

How long will your nest egg last?

About 10 years!

If saving less than $250,000 for retirement is part of your plan, then your overall retirement strategy should also include these elements:

  • Plan to live very frugally in retirement.
  • Do everything you can to preserve good health; you’ll likely need to continue paid employment until at least age 75.
  • Vote for politicians who won’t cut your Social Security benefits.
  • Invest your savings safely—like in an FDIC-insured account—because you cannot risk any loss of your nest egg.

One more chart:

Chart: Workers Having Saved Money for Retirement, by Household Income

From the EBRI 2013 Retirement Confidence Survey

To me this illustrates how The Great Recession impacted lower income folks far more severely than even moderate income workers. At the start of the meltdown-induced Great Recession, 49% of workers with household income less than $35,000 had saved money for retirement. This percentage plummeted by more than half over the next four years, likely because workers had to use retirement savings to pay living expenses during prolonged periods of unemployment (or under-employment.)

How Will Americans Live in Their Senior Years?

If we all stayed healthy and vigorous until death, then maybe there’s nothing alarming in the picture painted by the EBRI survey. (Except that seniors would increasingly be competing for scarce jobs.) Sadly, that’s not usually how things work out.

So what’s going to happen here? Will underfunded retirees be moving in with their adult kids to make ends meet? Will taxpayers be called on to prevent a massive increase in homelessness among 70 and 80 year olds?

How will the clear gap between retirement savings + Social Security and retirement expenses be filled?

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  • John S @ Frugal Rules

    I saw those numbers and it’s saddening though not very surprising. I would agree that the Recession more than likely impacted lower income Americans worse than anyone, as I think tends to be the case too many times. I am not certain how the gap will be filled, but it is a major concern. I actually have an infograpgh going up next week that shares some of these same numbers.

    • http://mymoneycounselor.com/ Kurt @ Money Counselor

      I will look forward to your infographic, thanks for commenting.

  • http://twitter.com/retirebyforty retirebyforty

    That is pretty sad. I guess retirees will just depend on social security and maybe keep working.

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  • http://www.mymoneydesign.com/ MyMoneyDesign

    I don’t know whether to be happy for myself that I’m above the $250K mark or sad for everyone else. Fascinating study despite the grim statistics.

    • http://mymoneycounselor.com/ Kurt @ Money Counselor

      Don’t worry, be happy!

    • guest

      Don’t get too cocky. Survive 4 crashes and then see how smug you feel.

      • http://www.mymoneydesign.com/ MyMoneyDesign

        I’m two crashes in so far and still sitting pretty. No worries!

  • http://www.readyforpretirement.com/ Kris Miller

    Times have changed; the unpredictability of the global
    economy is worrying. Jobs are difficult to find and to hold on to, inflation is
    gobbling up earnings, endless changes in the pensions and annuity markets are
    just some of the hiccups today. All this unpredictability means that concrete
    plans have to be made especially when it comes to securing the future in
    retirement.

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