Retirement — We’re not saving enough
March 22, 2013 12:00 AM | 1975 views | 3 3 comments | 8 8 recommendations | email to a friend | print
The U.S. is facing a retirement crisis. The simple fact is that most workers are saving too little to retire, according to the Employee Benefits Research Institute, which tracks pension issues. And workers are acutely aware of this.

An institute study out Tuesday found that the percentage of workers saving for retirement dropped to 66 percent from 75 percent in 2009. One-third said they had saved nothing for the years when they were no longer working.

Of those surveyed, 28 percent had no confidence that they would have enough to retire comfortably and 21 percent were “not too confident.” So about half of American workers are facing retirement with considerable economic uncertainty, and with good reason: 57 percent of the workers surveyed reported less than $25,000 in household savings and investments.

Meanwhile, many of those facing a pinched retirement, about 36 percent, planned to work beyond the minimum retirement age for Social Security of 62. But those plans might not always work out. The largest group of retirees does so at 62; only 14 percent retired after 65. EBRI says 47 percent of retirees left the workforce unexpectedly, because of health issues, job loss or disabilities.

Living only on Social Security guarantees a frugal retirement. Benefits max out at $1,320 a month, $15,840 a year, at age 70. And Congress may shave that formula for future retirees.

At one time, workers relied on traditional company pension plans, but those have almost disappeared. In fact, EBRI left them out of calculations because only 3 percent of workers are still covered by them.

Those traditional plans have been replaced in part by so-called defined-contribution plans like 401(k)s, but workers tend to dip into them for emergencies and other nonretirement purposes. Retirees can no longer count on high interest rates on their savings to generate income.

Retirement money has to stretch further because we’re living longer. According to a report by the Society of Actuaries, a man who turns 65 this year can expect to live another 20.5 years, a woman another 22.7, an increase of roughly a year each over the decade.

The problem is no less real for being slow-moving, but it’s better to deal with the retirement financial crunch sooner rather than later, whether through better savings instruments, more incentives to save or even mandatory savings requirements. As anyone over 65 can attest, you’re old before you know it.
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CobbCoGuy
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March 22, 2013
Not a bad post VFP42. We finally agree on something :)

The Replacement Ratio (RR) you discuss is a very important concept for those approaching retirement. I'd like to look at the RR heuristically.

When you retire you will no longer be contributing to your 401k or retirement savings plan, if you have one. You won't be paying FICA (7.65%) or Medicare (1.45%). If you live in Cobb County and are over 62, your property taxes will no longer include the school taxes. You will most likely be in a different tax bracket. For many, your gas/auto expenses will decrease since you will no longer be commuting to work.

I'm sure there are some a lot smarter than me who can add to this list ad nauseum.

There was a time when many companies offered pension plans, or defined benefit plans. These plans are dying for many reasons, including the fact that they are expensive (the employer bears the investment risk), and the Gubmint has pretty much regulated them to death which has also impacted the cost of providing this benefit.

So, we're left with 401k, or defined contribution plans. A wonderful thing; however, I'm very worried that the Gubmint, in their infinite wisdom, is on the road to over regulating these benefits.

The Gubmint recently implemented what is called the 408(b)(2) disclosure regulations. As always, the intent is good. It's the unintended consequences that hurt.

The new disclosures require plan service providers to disclose what they are charging. Sounds good, eh? Well, it does allow you to shop around and compare costs, sorta. The problem is the cost structure is SO complicated and Byzantine, that most folks will just ignore it. Moreover, the cost of doing business for plan providers just went up; again, thanks to the Gubmint.

I agree; the "burdensome regulations" you speak of are not doing the consumer much good.
VFP42
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March 22, 2013
Don't believe the hype. Retirement calculators will all tell you that you need 85% of your pre-retirement income, and to achieve that, you need to max your 401k at 15% and save 15% more outside of your 401k. That leaves you with 70% of your income now while paying the mortgage and commuting and SO MANY taxes. WHen you retire, you are no longer saving 30% of your income for retirement, meaning your effective income at 85% of your pre-retirement net income would be 85 / 70 which is 21% HIGHER than prior to retirement.

Who really needs 21% MORE take home pay in retirement than while they were working to pay for working, for kids, for schools, for houses, for car after car after car after car ...

Make sense? It's confusing I know. Let's say your salary is an even $100,000. Your retirement company will tell you that means you need $85,000 to live on when you're retired, and to get to that point, max your 401k at 15%, leaving you with $85,000 income, but also save about 15% more, leaving you with $70,000 income (before taxes of course!)

So they say you can live on $70k now, but "need" $85k after you retire. YEAH RIGHT!

Even if they only tell you to max your 401K, then their 85% is really 100% because you are currently saving 15%.

Let me be clear: Given the current shenanigans, retirement will be the next big bubble to collapse. 401k's will come crumbling down in just a few years due to "mismanagement" and "burdensome regulations."
FROM TEXAS
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March 22, 2013
Everybody complained about George Bush but just look at the money that’s been printed and the debt since the Czar Obama has taken office. Corn in gas that just raises food prices and everything else like my cousin’s in the hills says; every fool knows corn either goes in liquor bottle or on a table. How can people save much with Obama E-85 at $ 3.25 to $4.00 a gallon, they want you outa your car in a high raise and to take your guns. People just live to large as well trying to keep up with the Jones get to the place where you pay cash for everything they look at the monthly payment that’s it. That’s why the Broom Jockey Nancy Pelosi says we don’t have a spending problem. If you don’t have a year’s salary set aside than the company will always own you and so will the government.
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