Editor: Vladimir Bajic | Tactical Investor
The Looming Retirement Crisis: Americans’ Uphill Battle towards Financial Security
Updated March 2023
Introduction:
In the United States, an unsettling reality is beginning to unfold—a retirement crisis that threatens the financial well-being of countless Americans. As the population ages and the workforce undergoes significant shifts, the prospect of a comfortable retirement has become increasingly elusive for many individuals. With economic indicators boosting growth and prosperity, one would expect retirement savings to flourish. However, a closer examination reveals a disconcerting picture, riddled with challenges that hinder Americans’ ability to secure their future.
Unveiling the Harsh Reality: The Hidden Struggles of Retirees
One of the glaring concerns arises from the stark disparity between the average and median retirement savings. While statistics may highlight substantial average figures, they often mask the sobering reality a significant portion of the population faces. Vanguard, a renowned investment management company, reports an average 401(k) account value of $192,877 for investors aged 65 and older in 2018. However, this average is influenced mainly by a select group of long-time super-savers, concealing the true struggles of many retirees. Delving deeper, the median balance for the same age group paints a more unsettling picture—a mere $58,035, far from sufficient to sustain a comfortable retirement lifestyle.
Paltry Pensions: The Disheartening Median Annual Pension Amount
These savings fall short of meeting essential financial needs when projected over an extended period, such as the two decades that most Americans can anticipate spending in retirement. The annual withdrawals from such modest savings would average a yield of just over $3,000, leaving retirees grappling with significant financial constraints. The situation is not much brighter for individuals relying on private pensions, with the median annual pension amounting to a paltry $9,376, according to the Pension Rights Center.
Given these underwhelming figures, Social Security emerges as a critical lifeline for retirees. However, even this safety net has its limitations. The average monthly Social Security payment in 2018 amounted to $1,422, translating to an annual sum of $17,064. Although helpful, this amount alone is insufficient to cover the expenses of a comfortable retirement.
The Retirement Crisis: A Precarious Future and the Call for Solutions
In this landscape of insufficient savings, dwindling pensions, and limited Social Security benefits, it becomes evident that a significant portion of the American population faces a precarious retirement future. The gravity of this crisis intensifies as the baby boomer generation, numbering in the millions reaches retirement age in worse financial shape than previous generations since the days of President Harry Truman.
As we delve further into the underlying causes and ramifications of this retirement crisis, it becomes imperative to address the systemic challenges that have led to this precarious state. Solutions must be sought at the individual and societal levels, exploring avenues to bolster retirement savings, expand access to retirement plans, and cultivate financial literacy.
The path towards a secure retirement demands urgent attention, cooperation, and innovative measures. Failure to address this crisis risks burdening future generations and undermining the social fabric that should safeguard the well-being of those who have dedicated their lives to the betterment of society.
The Retirement Savings Gap: Average vs. Median Balances and Inadequate Pensions
Let’s begin with individual savings. At Vanguard, the average 401(k) account value for investors aged 65 and older was $192,877 in 2018. However, this figure is inflated by a small group of long-term super-savers. The median balance within this age group, representing an equal number of individuals with more or less savings, is a modest $58,035.
When projected for 20 years, considering that most Americans can anticipate living into their 80s, this amount doesn’t provide a substantial annual withdrawal—perhaps slightly over $3,000 on average. The situation isn’t much better for those with pensions. According to the Pension Rights Center, the median private pension amounts to just $9,376 per year (although state, local, and federal pensions tend to be higher).
This brings us to Social Security. In 2018, the average monthly Social Security payment amounted to $1,422, translating to an annual sum of $17,064.
In total, these sources sum up to $29,440 annually. While it is possible to live on $29,000 per year, especially if you own your home, have minimal expenses, and reside in a relatively affordable region of the country. CNBC
Americans are facing a retirement crisis
The recent survey conducted by Bankrate in late February and early March provides further evidence of a significant retirement crisis in the United States. Each day, approximately 10,000 baby boomers reach the age of 65, but unlike previous generations, they are entering retirement in a worse financial state. This is a departure from the situation since the time of President Harry Truman, as highlighted in a report by the Wall Street Journal.
The survey also raises an important question regarding why certain working-age adults have not been able to capitalize on a thriving U.S. economy and a historically prosperous stock market to accumulate wealth. Despite unemployment being at a near 50-year low and wage gains reaching a ten-year high last month, some individuals have been unable to seize these opportunities.
According to Bankrate, the primary reason (40 per cent) for Americans not saving is their numerous financial obligations. Sixteen per cent stated that they simply hadn’t prioritized saving, while an equal percentage blamed the low quality of their jobs.
It is worth noting that not all employers offer retirement plans such as a 401(k). A recent National Institute on Retirement Security (NIRS) study revealed that just over half of working American adults have access to an employer-sponsored 401(k)-type plan, and only 40 per cent actively participate.
Consequently, the median retirement account balance among working-age Americans is astonishingly zero dollars. Yes, you read that correctly—it’s zero. It’s important to remember that this is the median balance, meaning that half of all Americans have more savings than that, while the other half possess even less than zero dollars in their retirement accounts. Forbes
Originally published May 26, 2016
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