Report Finds Americans are Unprepared for Retirement
May 16, 2008
The combination of rapidly approaching retirement and concerns about
post-retirement financial security has not translated into more personal savings
for most Americans, said Standard & Poor's in a report released yesterday.
The report, titled "Older But Not Wiser: Why Americans Remain Dangerously
Unprepared for Retirement," finds that the average American household savings
rate remains near 0%.
According to Standard & Poor's chief economist David Wyss, the lack of
saving has helped keep economic growth positive but will make it more difficult
for older Americans to finance their retirement. Most Americans also continue to
rely on the government to provide for their retirement. Mr. Wyss noted that
although they say they're unsure about future Medicare and Social Security
benefits, they're doing little to increase their wealth before retirement.
"One solution is likely to be more post-retirement work as more retirees seek
a so-called bridge job in early retirement," said Mr. Wyss. "Unfortunately,
health and labor market conditions often prevent even those who
intend to work from doing so. In addition, in a weakening economy, bridge jobs
could be harder to find," he added.
Moreover, only 37% of Baby Boomers who are about to enter into the
post-employment world have a traditional pension coming from their employer.
That's down from 60% in 1983.
In addition, the shift to defined-contribution pensions -- the most common
types of which are 401(k)s, IRAs, and 403(b)s [and the Thrift Savings Plan for
federal employees] -- from traditional defined-benefit ones has had mixed
results. On the plus side, the percentage of households with no pension coverage
has declined slightly, to 34% from 37% in 1983. However, in 2004, the median
401(k) plan for people in the 55 to 64 age group was worth only $60,000 -- not
enough to provide for much of a retirement. (In 2006, the average 401(k) balance
for people in their 60s was $157,727.)
Mr. Wyss explained that the other problem for the near-retired is the poor
performance of the asset markets in recent years.
The S&P 500 will have its worst decade since the Depression if it closes
below 1469 at year-end 2009. "Retiring in a period like such as this strains
assets in the best case, and this is far from the best case," noted Mr. Wyss.
"Asset values have been declining, while saving rates have hovered near 0%, and
if older workers aren't adding to their wealth and if their asset values are
falling, the prospects of a comfortable retirement are receding. The average
household had wealth equal to 558% of after-tax income at year-end of 2007, down
from 569% a year earlier and 618% at the market peak in 1999," he concluded.
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