The Retirement Saving Deficit in America
Savings Beagle is all about finding deals and saving you money. Occasionally, however, I like to take a step back and look at why a more frugal mindset, and taking the extra time to save money, is good, not only for your bank account, but in the big picture of life as well. This is one of those times.
It’s a fact, Americans just aren’t saving enough to fund their retirements.
According to a recent article by Philip Moeller in Money magazine, “Overall, 63% of workers and their spouses say they are currently putting away money for retirement. But 54% had amassed little in savings – less than $25,000. Only 26% reported assets of $100,000 or more.”
Which roughly corresponds with a Fidelity Investments statistic that shows the average 401(k) balance of workers over the age of 55 to be approximately $130,000.
All of those numbers are woefully inadequate. Take a look at a retirement calculator if you don’t believe me.
The low individual retirement savings rate is not really news. It’s something that has been an issue for a while now and doesn’t seem to be getting any better.
Extended life spans exacerbate the problem, not only for individuals, but for corporate and public-sector pension plans as well.
These pension plans were set up for retirements that would last 10-15 years. Now, with people living well into their 80s and some into their 90s, the financial obligations to the plans are simply too great.
And we’re seeing this exact situation negatively affect the Social Security and Medicare systems. While many politicians act as if nothing needs to be done, the truth is, significant changes to the benefit structure must be made to ensure future viability.
Recently updated mortality projections for the U.S. by the Society of Actuaries show that a male who reaches age 65 today will likely live another 21.6 years and a woman who turns 65 will live an additional 23.8 years.
So, with these life expectancy numbers, and the low retirement savings rates many Americans are exhibiting in mind, let’s look at what that means for America’s entitlement programs.
Considering the large number of baby boomers that are now entering retirement – collecting Social Security and utilizing Medicare benefits – and the even larger numbers that will be joining them over the next 15 years, strained might be an understatement when it comes to describing what will happen to those entitlement programs.
Keep in mind, neither program is financially sound as it is. And because our politicians are reluctant to address the financial solvency problems, the ability of these programs to support beneficiaries at current benefit levels will become less and less as time goes on.
Less in the monthly Social Security check, less generous medical benefits from Medicare and limited personal savings point toward a pretty bleak “golden years” for many Americans.
Where will these individuals turn when their limited resources won’t cover their expenses? Government programs, of course. Except because our elected officials will not take seriously this country’s debt and deficit crisis, the likelihood that our government safety net programs will be able to support such large numbers of citizens in the next 20 years is close to nil. There just won’t be the funding necessary to do the job. America’s debt payments on $19 trillion + alone will be gobbling up significant amounts of annual revenue.
Having these safety net programs pay for food and shelter is one thing. But as our population ages, the need for assisted living facilities will become enormous. And at $50,000 per year at the low end, imagine the financial burden that will put on our federal government. Remember, few retirees will have the personal funds to pay for such care.
Too many people relying on government for basic living necessities and too few taxpayers to adequately foot the bill. That truly is a recipe for disaster.
Is this scenario scary? You bet. Frightening beyond belief. Which is probably why many of our elected officials refuse to address the base problems – deficit, debt, Social Security and Medicare – it’s just too overwhelming for them. It’s better to continue as is and hope for the best.
Similar to what many Americans are doing with their retirement savings.
I wish there was a good solution to offer. There really isn’t. A start would be to reign in government spending and its related deficit and debt. In addition to getting Americans to take more seriously the act of saving money for when work is no longer an option.
It’s a mindset problem. Our government needs to change its mindset and we Americans need to change it as well. Spending more and more is not the answer. A more frugal nature is what is needed all the way around.
Make no mistake, the alarm bells are ringing – more loudly every day. Is your elected official listening? Are you?
image courtesy of Witthaya Phonsawat/freedigitalphotos.net
