If you aren’t aware that our retirement financing system in
this country is broken, then you haven’t been paying attention. People have
been shouting it from the rooftops for a long time now.
Google “retirement shortfall” and you’ll find a boatload of
articles on the subject beginning a decade ago or even earlier. This shouldn’t
come as a surprise to anyone at this late date.
How do we know it’s broken? Because most households will
need to save at least $200,000 to maintain their pre-retirement standard of
living after leaving the workforce and according to the Employee
Benefits Research Institute (EBRI), only about 10% of workers will retire
with that much. Almost one-half of Baby Boomers and Gen Xers were determined to
be at risk of not having sufficient retirement income to cover even basic
expenses and uninsured health care costs.
Lest you think this is a Baby Boomer problem, EBRI studies
show that younger “cohorts” are even worse off.
Why haven’t people saved enough? There are no doubt many reasons, but in
general the problem is that out current “system” for retirement funding demands
far more from most families than they can possibly save, investing skills that
most don’t have, and a whole lot of luck.
Teresa Ghilarducci explained the problems quite well in “Our
Ridiculous Approach to Retirement.” Wall Street money manager and former
neurologist, William Bernstein put it this way in a Money magazine interview
in September 2012:
“I did a little thought experiment
in which I calculated how many years it took people starting work in different
years to make their number. I realized that the cohort that started working
during the worst of economic times is the one that did the best. The last
cohort that actually was able to make their number started their careers in
1980, and they made their number in 19 years. And the graph ends in 1980,
because no cohort that started work after 1980 actually made the number. “
In February 2011, the Wall
Street Journal reported,
“the 401(k) generation is beginning to retire,
and it isn't a pretty sight.”
And in case you thought Social Security would bail you out,
the New York Times ran a story
on the prospects of living off the benefits alone.
It isn’t pretty, either.
Our retirement system is in deep trouble. It doesn’t work.
And if you are still avoiding the issue, it isn’t because the media have been
trying to keep it a secret. As two-time
Pulitzer Prize-winning editorial cartoonist and columnist David Horsey
recently put it, Time
to Wake from the American Dream and Face Retirement Reality.
I’m not trying to scare you. . . well, maybe I am. If you’re
still young I hope I scare you into saving every penny you can for retirement.
As Bernstein says, “Save as much as you can as early as you can and don’t ever
stop.” And who knows, conservative politicians have been trying to undo Social
Security since it became law in 1935 and maybe one day they will.
If you’re closer to retirement, then scaring you isn’t going
to help. There are things you can do, though.
Read my series, Inadequate Retirement Account (IRA), for
ways to make the best of your situation.