Thread: Bleak retirements for 150 million?

Bleak retirements for 150 million?

A majority of Americans aren't saving nearly enough for retirement -- or aren't saving anything at all. And the expenses they'll face in their later years are sobering.

By MarketWatch
What's the best way to motivate Americans to save, invest and prepare for retirement? Some behavioral-finance experts suggest using a carrot. Others suggest using a stick. And still others suggest using a combination of carrot and stick.

As for me, I suggest the use of statistics. Consider just a sampling of the numbers that were released last year:

IRAs and 401(k)s
There is $4.23 trillion in individual retirement accounts, but that figure hides the fact that relatively few Americans contribute to IRAs and that even when they do, the amounts are small.

Only 14% of U.S. households contributed to IRAs in 2006, according to the Investment Company Institute. You might think that's not so bleak given that working Americans are presumably saving for retirement using employer-sponsored plans, such as a 401(k), a 403(b) or the federal Thrift Savings Plan. But again, the numbers are somewhat depressing.

Calculator: Run the numbers on your retirement

There are nearly 100 million Americans age 21 to 64 with full-time, year-round jobs. But of that number, just 60%, or 58.4 million, work for an employer that sponsors a retirement plan, and only 52.7%, or 50.8 million, participate in a retirement plan.

That means roughly half of all working Americans don't participate in a retirement plan or don't have an employer-sponsored plan in which to participate. It also means that a huge number of adult Americans -- by my estimate, 150 million of a potential 200 million -- aren't saving for retirement in any meaningful way, if at all.

Retirement risks
According to the Society of Actuaries' 2007 Risks and Process Retirement Survey, about 50% to 60% of retirees worry about three things: the cost of health care, the effect of inflation on their nest eggs and not being able to maintain a reasonable standard of living for the rest of their lives.

Those worries are justified given the lack of savings in America. But what's really bothersome is the degree to which those who aren't worried should be.

Consider, for instance, health-care costs. Fidelity Investments estimated last year that a 65-year-old couple retiring then would need $215,000 set aside just to pay for medical expenses over 20 years. And if that isn't depressing enough, other estimates are even higher.

Paul Fronstin of the Employee Benefit Research Institute, for instance, said a 65-year-old couple retiring now would need, assuming average life expectancy of 82 for men and 85 for women, more than $300,000 set aside to pay for health-care costs (premiums and out-of-pocket expenses) in retirement. That would rise to more than $550,000 if the couple lived to age 92.

What's even more depressing is that those estimates haven't factored in the cost of nursing homes, assisted-living facilities or home health aides. And those costs are staggering.

According to the MetLife Mature Market Institute, it costs $69,000 a year for a semiprivate nursing-home room, $35,628 a year for a unit in an assisted-living facility, $19 an hour for a home health aide and $61 a day at an adult-day-care center. Where's that money going to come from?

Retirement expenses
Retirees and would-be retirees are also right to fret about maintaining their standards of living. Consider, for instance, these numbers: The median household income (half above, half below) in America is $48,451, and the average is $65,527, according to the U.S. Census Bureau. But in retirement, income falls dramatically.

The average total income for those 65 and older in America is $25,610, and the median is a meager $16,770, according to EBRI Notes, a publication of the Employee Benefit Research Institute. That means retirees are living on roughly one-third of their pre-retirement incomes. And that's a far cry from the 70% to 80% that income replacement experts suggest Americans need to maintain their pre-retirement standards of living.

Besides not having the incomes to maintain their former standards of living, retirees will face expenses, such as health care, that are certain to rise faster than the average rate of inflation. According to the 2005 Consumer Expenditure Survey, retirees spent 13% of their incomes on health care, on average.

Sources of retirement income
So where do retirees get their incomes once in retirement? Again, the numbers are depressing (and deceiving). On average, retirees get 39.8% from Social Security, 23.7% from earnings, 19.4% from pensions and annuities, 15.4% from assets (IRAs and the like) and 1.9% from other sources, according to EBRI Notes.

But the composition of the incomes varies dramatically. Retirees in the bottom fifth of income -- those with less than $8,261 in 2006 -- got 87.6% of their money from Social Security. Retirees in the top fifth of income -- those with greater than $34,570 -- got 36.4% from earnings, 22.6% from pensions, 20.5% from assets and just 18.5% from Social Security.

The moral of story
If you are among the 150 million who are saving little or nothing for retirement, now would be a good time to do so.

If you are among those who aren't worried about health-care costs, inflation or maintaining a standard of living in retirement, now would be a good time to start worrying.

If you are among those who worry about retirement risks, now would be a good time to do something about it. Set aside money for health care, for instance.

And if you are among those who don't know what your sources and composition of retirement income will be, now would be a good time to figure that out. After all, waiting to see how things might work out isn't the world's best plan.

This article was reported and written by Robert Powell for MarketWatch.

Published March 28, 2008

http://articles.moneycentral.msn.com/Re ... llion.aspx

Well......considering the bleak jobs and low pay...people are using every dime to live now....forget saving enough to live for 20 years....can't expect people to save when they don't make enough to live on now. Heck...for many they think when the kids are grown and gone....but the kids aren't leaving because they can't get a job that pays enough to leave. So they're still paying years later for their kids....half the time when they do leave....they're back in few years with grandkids now.....and you can't have your grandkids out in the street.....or they're caring for their parents.....can't put money away then either.....I for one know full well I will never be able to retire.....got things down to living which is more than some.....but they're doing all they can to make that impossible as well....like taxing people to death for something they own. The future is definatly horrifying.........

How depressing.