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The Retirement Crisis

Friday, June 19, 2015

by Sheila Jamison & Rich Jamison

June 19, 2015

We have a retirement crisis on the horizon. We’ve begun to hear the term a bit more frequently but it’s not being addressed adequately. Despite the recent increase in noise, it’s still being disregarded more than addressed. And it affects everybody in the country, regardless of where you live and work.

Retirement Savings

The average American’s IRA is currently worth ~$27,000. Some call this misleading information; not really bad because it includes ‘kids’ just starting careers. But that can’t explain the government accountability office’s (GAO) finding that 29% of Americans age 55 or older have NO retirement savings whatsoever; no IRA, no pension, no nothing?

They also show the other 71% aren’t doing a whole lot better. The median savings is about $104,000 for households with members between 55 and 64 years old and $148,000 for those 65 to 74 years old. These equate to an inflation-protected annuity of $310 and $649 per month, respectively. Those figures probably don’t make a huge dent in your current monthly expenses?

Help Going Away?

We believe the Department of Labor’s “fiduciary rule” – if it goes into effect as it stands now – will harm people saving for retirement by limiting or eliminating their access to financial advice. In simpler terms, it will leave people to figure out how to reach their goals by themselves.

The Other Side of that Coin

Americans have a huge need for help in preparing for retirement. For example, people must save more - much more - than they have been saving. The results of not doing so will be disastrous.

Right now, 39% of pre-retirees have not saved the first nickel. Of those who have begun, 64% have amassed $100,000 or less. Asked what they will do when they reach their intended date if they don’t have enough money, 70% merely said they would retire later.

Easier Said Than Done

On the face of it, it sounds like a simple solution. But a 2012 Employment Benefit Research Institute study found about half of retirees retired earlier than planned because of health problems, changes at their workplace or having to care for a spouse or another family member. This suggests that many workers are overestimating how much they will have on hand for retirement when the time comes.

Bottom Line

Laurence (Larry) Fink, Blackrock’s CEO, summed this up as the inadequacy of savings in the U.S. private sector will be a drag on our economy. To quote him,

“This is going to be a far bigger crisis than health care ever was.”

He made a strong case the presidential hopefuls should take this off the back burner and debate it prominently. He said that the rest of us (the private sector) need to do a better job of education and increasing the savings of Americans.

Doing Our Part

Our retirement simulator program gives you a look at how your plans will likely come out (learn more about it here). More important, we can change inputs to see what happens. What if you save X% more? Work Y years longer … or retire Z years earlier? Inflation is 1½ times as high … or 1¾ … or only ¼ as much? What if medical bills soar? What happens if you change your Social Security benefits start date earlier or later? Seeing what these changes can do help to spot the challenges. Knowing the challenges lets us find potential remedies to them.

We’ll Work Together

Once we have your basic data, you can join us by phone. On your computer, tablet or smartphone you are able to watch with us to see how every change you make impacts the others. Save more? Work longer? Invest differently? Play with SS benefits? The effect of each is visible for you to examine as we make the changes you want to make.

Then you can decide the best way for you to balance out the various factors to get to where you want to go. We’re here to help you interpret the results and plan to move them in the best direction to match your hopes and dreams.

Blackrock’s CEO said we all have to do more. As is always our way, we’re anxious to do our part in making your life better.

References:

BlackRock CEO Larry Fink challenges money managers, politicians on retirement issues. Trevor Hunnicutt. InvestmentNews.com. June 16, 2015.

29% of Americans 55+ have no retirement savings. Tom Anderson. CNBC.com. June 3, 2015.

2015 Overview: The State Of Retirement. Retirement Income Strategies and Expectations (RISE) Survey. Franklin Templeton Investments. January, 2015.

Retirement Income Adequacy for Boomers and Gen Xers: Evidence from the 2012 EBRI Retirement Security Projection Model. Jack VanDerhei. EBRI.org. Vol 33, No. 5, May 2012.

 

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