43% of Americans have less than $10k for Retirement, Seriously

by Darwin on March 9, 2010

I was shocked by the results of a recent survey outlining how almost half of Americans have virtually no savings, no retirement, nothing (Employee Benefit Research Institute’s annual Retirement Confidence Survey via CNN) .  Now, this excludes the value of real estate and pension promises, which is a major culprit I believe.  With the nanny state and bailout nation that’s been fostered stemming from the financial crisis, I’d be surprised if this situation improves in the near term.  How did we get here?

I recall a conversation with a family friend who’s nearing retirement.  He’s a public school teacher.  When talking about savings and retirement, he boasted,

“We’ve never saved a dollar.  Not one dollar.  Why would we?  We don’t have to.  I get my full pension when I retire”

So, that’s problematic from a few fronts.  First, it is case in point of unionized public sector workers living off the public largess which is simply untenable.  My wife’s a teacher by the way, so I don’t have anything against teachers.  But for firemen, police, teachers and the seemingly endless litany of other roles that are becoming increasingly dependent on the taxpayer to fund, there’s an expectation of full or near-complete salary pension payments for life.  With life expectancy increasing and healthcare becoming ever more expensive, it should be evident that this is not sustainable.  Now, I can’t blame workers themselves; I mean they worked a job for 25-30 years, they were made certain promises regarding their pensions, and they planned accordingly.

“But look at Greece”

We aren’t too far off.  We already have a few states on the verge of bankruptcy.  They need a bailout next, right?  And for the US as a whole, when you look at deficits as a % of GDP, the hopeless gap in revenues minus spending and debt service over the next several years and a massive shift from private sector employment to public sector employment (the private sector has to pay for the public sector [govt]), it would not be beyond the realm of possibilities that the US is going to need some “austerity measures” of their own sometime down the road.  This may include a reduction in promised pension benefits, a increased retirement age, higher taxes or other measures that shift the calculus of this family friend from “why would I bother saving” to “I’m really screwed and wish I saved some money and didn’t rely on the public teet for my retirement”.

Let’s get off public sector employees though.  We’re talking about 43% of working Americans in the survey.  I realize there’s a portion of the workforce in the survey that are young workers that perhaps haven’t started saving yet or haven’t yet breached $10,000…but 43% !?!  How does that happen?  I mean, a mildly liberal emergency funds should start at $10,000 for many families.  How do this many people not have either?  No savings, no retirement funding and no emergency fund?  This many people living paycheck to paycheck just blows my mind.

It’s automatic! Many jobs these days have automatic investment plan participation.  Studies have shown that when they’re opt out instead of opt-in, the participation rates are far higher.  For workers that perhaps aren’t with a large company with a retirement plan, there’s always been the traditional IRA which comes with a tax break under the threshold and good old cash/stocks in a traditional account.

The only thing I can say is if you’re not saving for retirement, you better start investing today, and if you think a government or corporate pension are going to take care of 100% of your retirement needs, you may want to think again.  Pensions can be cut. Benefits can be cut. Taxes can go up. Inflation can take off.  While there are ways to hedge energy costs, hedge currency crashes and dodge some bullets, if you don’t have enough money in retirement to begin with, these are minor band-aids for a major malady.

Do You Feel You’re On Track for a Reasonably Comfortable Retirement?

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{ 11 comments… read them below or add one }

1 Rob March 9, 2010 at 10:47 pm

I’m way off track for retirement, BUT I’d say I’m still way ahead of the game compared to the average Joe. Why? I *know* I’m off track. I know that I won’t retire with a pension. I know that I’ll never see a dime from social security, even though I’ll pay into it for my entire adult life.

I know these things, so I’m ahead of the game. Most folks are entirely clueless – either they expect their company / the government / a llama / etc to fund their retirement, or worse, they’ve never thought about it. Not sure if we teach retirement savings in school these days, but I doubt it. Sounds like something we need to work on.

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2 MoneyEnergy March 9, 2010 at 10:52 pm

Egads – I wonder what the age range is on that statistic. I’ve saved well more than that amount, and I’m still in grad school (and have also already paid off some of my student debt). …. I’m not sure what the average Canadian statistic comparable to this is, but I know that the average networth for my age is still significantly higher than where I am. Personal debt loads have grown in Canada, but I think they’re still not as bad as the average in the U.S. currently is.

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3 Investor Junkie March 10, 2010 at 7:52 am

This is sad, just so sad. I hope these are people in their twenties, not fifties. I made the same comment about the $10k is emergency savings, not retirement.

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4 ctreit March 10, 2010 at 11:13 am

1. If a retirement plan is part of an employment contract, the employer must make sure that there will be money available for retirement payments. It does not matter whether this is a public or private employer.
2. There is another big potential problem of such low retirement savings. How do these people take care of themselves in old age? What if they get sick or become unable to work as many older folks do? Who pays for their survival if they have not provided properly for it themselves? – These low retirement savings will be an issue that we will have to face as a society. Maybe it is the rational choice to skip providing for old age. Instead it may be rational to live paycheck to paycheck and count on society to bail you out when you can’t get a paycheck anymore.

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5 Budgeting in the Fun Stuff March 10, 2010 at 1:05 pm

I just wrote a post on this article for Monday…how kooky is that?

Anyway, like I said in my post, the survey was only done with 1153 people…that doesn’t seem like enough.

But I do agree that people are not saving enough…even without my husband’s pension or our home, we are in our mid-late twenties and have about $65,000 saved up between cash, a 401k, a Roth IRA, and a Scottrade account. $21,000 of that is in cash. If we can save for retirement like this in our 20′s, I challenge everybody to start.

Like you wrote, it’s surprising how little people seem to have saved so far…are they expecting a retirement fairy when social security starts paying less and less?

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6 Kevin Khachatryan March 10, 2010 at 3:24 pm

1153 is enough! That’s a huge statistical pool!

That narrows down the +/- to at most 4%, so your actual saving rate could be between 39- 47%.

I really find this it interesting that people don’t save at least 10-15% of their paycheck.

I wonder, if someone happens to these people… if they lose their job, have a problem with their house, etc… how long can they sustain themselves?

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Smart money Reply:

@Kevin Khachatryan,
1153 out of a population of 310 million (310,000,000) ….that’s 0.00000372% of the US population. Of course, not 100% of the population should be considered but the statistical sample is still too small.

It does highlight very important points, namely:
*A lot of people have not saved enough for retirement
* Governments are spending more than their revenue (hence deficits)
* If you’re not saving for your retirement now (whatever age you are), chances are, you may find yourself homeless and living on the street in your old age

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7 jim March 10, 2010 at 5:29 pm

A pension is a contract, you can’t just cut the benefit in half after the fact. They can change pension contributions moving forward or give people an incentive to voluntarily convert to a contribution style plan. The gradual shift away from defined benefit pensions has been happening gradually all across America for decades in both public and private jobs.

When you have a pension there really isn’t nearly as much of a need to save on your own. The fact that many people don’t save on their own isn’t fixed by getting rid of pensions.

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Darwin Reply:

@jim, While a pension is a contract, contracts are amended routinely. Additionally, when a corporation has pension obligations and goes bankrupt (happened quite a bit in 2008-2009), the obligations fall to the Pension Guarantee Corp which is a government entity. The payments out of that system are not 100%, often they are 80% or less; many factors that drive final value. Aside from the spectre of losing 20% of presumed spending power, many corporations are also ceasing their defined contribution plans. So, a 40-something that assumed he’d retire at 100% pension is now going to have say, $100K plopped into his 401K account to account for vested balance and then no pension. He’s on his own. So, he’d have to invest/plan accordingly from then on as well. Finally, on the municipal and government side, I believe it is a mathematical certainty that the growing payrolls with gold-plated pension obligations cannot be supported indefinitely and they will have to either be cut or funded with higher taxes (which has an indirect effect of reducing one’s pension buying power). From many different angles, I believe people counting on a pension taking care of them completely are kidding themselves.

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8 Oscar At Real Life Money Management March 11, 2010 at 10:46 pm

This is really scary. Way too many people living for today and not planning for tomorrow. Unfortunately our government is doing the same thing. When and how will it end, the Good Lord only knows. The sad thing is that all those people not saving will be the ones wanting those of who are making the sacrifices to save to bail them out in the end. What do you do? I guess the best thing is to try and educate as many people as we can.

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9 Samurai March 16, 2010 at 7:46 pm

I’m pretty sure that this is another example of media sensationalism and schadenfreude. Reporting on stuff to make themselves and others feel good.

I bet the large majority of us have way more than 10K saved. And no, we are nobody special.

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Darwin Reply:

The survey was over 1000 people, so while not enormous, it’s a decent sized sample. I think we’re going to find in 10 years a lot of people that are of “retirement age” aren’t retired. Because they behaved irresponsibly and didn’t plan. Who knows, given their voting power, perhaps the administration will do a “retiree bailout”.

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Financial Samurai Reply:

@Darwin,
Yeah, I just don’t believe it. It can’t be true if we all have more than $10,000.

I wouldn’t be surprised by a retiree bailout at all. It’s the American way!

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10 Aury (Thunderdrake) May 24, 2010 at 10:57 pm

That is a very, very scary thing to think about… People boasting about their pensions like that is just another way of clinging to the government. The government puts it’s people second to whatever agenda it has. If they starve, they starve.

Not even an ounce of gold? A few blue chip stocks? A savings bond? scary.

No thanks… I’d rather have control over my own assets.

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11 Smart money November 3, 2010 at 10:27 pm

Maybe they’ll be revisiting the Agrarian age again. Or maybe we can expect a lot of dumpster diving from those unable to survive. Either way, the biggest danger is inflation. Inflation erodes our savings and capital every single year and your average person on the street does not factor inflation into their retirement calculation.

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