The Retirement Savings Crisis: Is It Worse Than We Think?
Americans are highly anxious about their retirement security, and for good reason. Private sector employers have shifted away from traditional defined benefit (DB) pensions, which provide a stable source of income that lasts through retirement and are managed by professionals. Instead, most private sector employees with workplace retirement plans must rely upon defined contribution (DC) individual investment accounts, such as 401(k) plan accounts, which were originally designed to supplement—rather than replace—DB pensions. Now, the risk and much of the funding burden falls on individuals, who tend to have difficulty contributing enough on their own and who typically lack investment expertise. This shift from DB pensions to DC plans has significantly eroded the retirement readiness of Americans.
The financial crisis of 2008 highlighted the vulnerability of household retirement wealth in the new DC-centered system. Financial experts suggest that people need 8-11 times income in retirement assets in order to maintain their standard of living in retirement. In the current economic environment, some have increased the recommended contribution rate from 10 percent of pay to 15 percent in order to reach this target by retirement age. This is a hefty savings burden. The vast majority of households have not been able to accumulate sufficient retirement assets.
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The key findings of this report are as follows:
1. Account ownership rates are closely correlated with income and wealth. More than 38 million working age households (45 percent) do not own any retirement account assets, whether in an employer-sponsored 401(k) type plan or an IRA. Households that do own retirement accounts have significantly higher income and wealth—more than double the income and five times the non-retirement assets—than households that do not own a retirement account.
2. The average working household has virtually no retirement savings. When all households are included—
not just households with retirement accounts—the median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households. Two-thirds of working households age 55-64 with at least one earner have retirement savings less than one times their annual income, which is far below what they will need to maintain their standard of living in retirement.
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More at: http://www.nirsonline.org/storage/nirs/documents/Retirement%20Savings%20Crisis/retirementsavingscrisis_final.pdf
It will be quite interesting to witness how this plays out in the political arena in years to come. It may lead to a general increase in the retirement age and a corresponding increase in the age to collect SS benefits etc.
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Most of my adult life I've lived on <$20K/year, even owning a horse. Even when my career took off and I grossed a little over $100K/year, I didn't take home or spend close to $100K.
I lost most of my retirement savings when I was laid off at 48. My house is paid for, but I took on student loan debt to make myself employable in my 50s and 60s.
As soon as I can sell my house, I can pay off the student loans and downsize my house and location, while increasing my acreage, cutting my property taxes in half and probably lowering my heating bill as well... and still have enough left over to fix up the new house (I've identified a couple of places to my north on the market for less than half what mine is).
Worst case, people adapt. If I lost everything, I'd look for a Buddhist monastery to join. There will be more co-habitation, growing your own food, etc. If you dread having to farm and garden, then you'll need to work and save more. Me, I look forward to it. I expect to volunteer at animal shelters and, depending on exactly where I end up, maybe even a favorite alternative radio station, for my social life. Free concerts in the summer, hiking, kayaking, cross-country skiing, stargazing, plenty to do here for free.
Depending on how it goes, I may not replace this car. There are rural places in my state where homesteaders are starting to rely on horse and carriage again. There are small farms up here where they never stopped using horses to plow and twitch logs...
