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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