Family Retirement Savings Are a Real Cause for Concern

A recent report by the Economic Policy Institute (EPI) looked at how prepared Americans were for retirement. "The State of American Retirement" revealed that almost half the families in the USA had no retirement savings and would thus be completely dependent upon the Social Security System which was only ever designed to support retirement, not entirely fund it.

Those in the age band, 56 – 61, were most likely to have a retirement account, around 60% of them while those in their early 30s were least likely, around half. That is despite the fact that those in their 20s appear to be the ones most conscious of the need to save. Most did not feel the real effects of the recession but they saw what it did to the Country and its economy. People in that age group have time on their side but they must use it. Many of those a few years older have not done that and it is a real cause for concern in society.

It appears that those in the high income range were the most likely to have their retirement strategy in place. It may seem obvious that would always be the case except many people spend what they earn and their lifestyle reflects their income. It does not necessarily follow that the wealthiest section of society will have prepared better than middle and low income families. However, the last available figures which are for 2013 indicate that 90% of high income families had retirement savings in place as opposed to 10% in the low income bracket.

401Ks Do Not Seem to Be Doing the Job

The most common way to provide for retirement is to open a 401k which is a plan where employers may contribute up to a certain level to add to the individual's saving. The investment risk is down to the individual so it does involve a certain level of expertise and of course during the recession that was especially difficult. Other pension plans do involve the employer promising benefits and having to make up any shortfall if the savings do not reach the required level. The employee receives the benefit without contributing personally. Individual Retirement Accounts (IRAs) receive preferential tax benefits and are an obvious way to save for retirement though it seems that they are more common among high earners as a means of reducing their tax rather than as a means of saving more.

The problem is most critical amongst low income people, especially those with a poor education, often single, perhaps from one of the minorities and more women than men. They often seem to have no savings for retirement at all and are living on little more than $10,000 a year which is below the poverty threshold. So great bad credit cash providers would be able to give you money for taking your previous bills and debt.

Prior to the recession, 401ks were working well. Real estate prices were soaring and stocks were doing well. There had been a slight hiccup in 2001/2 but the Collateralized Debt Obligation (CDO) Crisis created a period of sustained stagnation. Few people had as much in their 401k in 2013 as they had had before the CDO Crisis struck, a period of 5 or 6 years which can be critical, especially for those creeping closer to retirement.

There has been a significant change in retirement planning over the last couple of decades. 401Ks have become far more popular than the plans where the employer is providing the benefits so the poor performance of 401ks has increased the problems for workers, even though they have acted responsibly in opening a 401k. At the same time the Social Security System is not geared up to fund retirement and as it stands the System is likely to pay even less in the future.

The Social Security System Faces Problems

Estimates suggest that by the mid-2030s demands on the System will lead to a reduction of benefits across the board in excess of 20%, a huge problem in that benefits are currently regarded as insufficient. The problem is that fewer people are contributing, people are living longer and there are more of them claiming. You may say it is obvious that more funds need to be put into the fund, effectively from increased taxation but there appears to be little will in Congress to do that. Certainly the Republicans are looking to reduce federal involvement rather than increase it.

While the economy is improving that does not mean that companies will necessarily offer increased benefits to their employees such as retirement plans that they will fund and guarantee.

While in some ways 2030 is a long time in the future, this is an issue that needs addressing. That will not be happening this year because it is Presidential Election year. The new Administration takes over early in 2017 but the new President alone cannot necessarily change things without the support of Congress. A Democratic Administration is the best chance of reform but if there is a Republican majority in Congress, House of Representatives and Senate, any initiatives can be blocked quite effectively. Time will tell what will be proposed but in the meantime it is a real worry that an aging population has insufficient in terms of saving to live their lives in comfort, even if they do not face emergencies such as unforeseen medical bills.

Retirement Savings

The Social Security System Faces Problems

401Ks Do Not Seem to Be Doing the Job

Family Retirement Savings

Real Cause for Concern