In an article in Advisor Perspectives, actuary, financial planner and retirement researcher Joe Tomlinson delves into the question: Do We Face a Retirement Crisis?
The “we” Tomlinson refers to is American society as a whole. His conclusion is that the “crisis” for the current generation of retirees is a bit overblown, but the future looks difficult indeed.
The first culprit is well known; the diminishing availability of traditional defined benefit pension plans, down from 60% of workers in the 1980’s to 20% of workers today. In some work places, these have been replaced by defined contribution plans, such as 401(k)’s, in which employees are responsible for their own retirement savings, with only modest employer contributions. But households nearing retirement have only saved, on average, $135,000; enough to generate only about $600/month in retirement income. And around 30% of Americans rely on Social Security for 90% of their retirement income.
But Tomlinson found other research that is more sanguine, at least for current retirees. Many retirees are living comfortably, not running out of money and satisfied with their circumstances.
The Center for Retirement Research at Boston College produces the National Retirement Risk Index, which estimates that 50% of Baby Boomers and Generation Xers are at risk of not being able to maintain their living standards in retirement, especially when health care costs are included.
Many more retirees are carrying mortgages into retirement and debt levels in general among older Americans – as well as bankruptcies – are higher than ever.
As a society, we all have an obligation to be concerned about this problem. But the first place to look for a solution is in the mirror. Let’s make sure that we each are saving enough, investing in the right places and have a plan that makes sense for our own retirements.