America’s Retirement Crisis: Problems and Solutions

Is Your Retirement Security in Trouble?

America is facing a retirement crisis. Less than half of Americans believe they will have enough money saved for a comfortable retirement, says a 2023 survey by Natixis Investment Managers. But it gets worse. The same survey found that many workers underestimate how much they need to save, 25% of plan participants have dug into their retirement savings already, and 70% of participants believe Social Security benefits will be drastically reduced by the time they retire. Why is retirement security so low?

How Much Do You Need to Retire?

If you’re not saving on pace to put yourself in a safe position in your golden years, you are in the majority of Americans. To retire at 67, it’s generally accepted that you will need 80% of your annual pre-retirement income, which means that you should be saving at least 15% of your pre-taxed income each year. By the time you turn 67, you’ll ideally have just over $1 million saved. Unfortunately, this number is unattainable for many Americans. But why?

The Factors Behind the Retirement Crisis

It may be less about willingness and more about opportunity and lack of information. According to the U.S. Department of Labor, as of 2022, 57% of working-age Americans do not own any retirement account assets. Growing wealth inequality has made it difficult for more than half of Americans to meet even the minimum savings goal.

Factors such as underestimating the amount of savings needed for retirement, withdrawing money from retirement plans to pay off personal debt or healthcare costs, and varying levels of intended reliance on Social Security plague Millennials, Gen Xers, and Boomers to different degrees.

But there are also outside forces at work that can put your retirement security further in jeopardy. The Natixis 2022 Global Retirement Index cites 3 core issues that threaten retirement:

• Inflation: World events such as the pandemic, global supply chain issues, and the war in Ukraine caused a dramatic rise in consumer costs and inflation between 2021 and 2022. The rising cost of living today significantly impacts retirement savings tomorrow.

• The impact of central bank rate hikes on retirement income: The Federal Reserve’s rate hikes aimed at countering inflation may mean higher income in the future for some retirees’ investments, but not without inflicting pain today and eroding purchasing power.

• Aging population: The percentage of people over age 65 is expected to reach 40.4% in the U.S. by 2050 – a 12% increase from 2020. More seniors will rely on the payments, with fewer workers contributing. With the current system, benefits may be shrinking for future generations.

Other retirement planning mistakes cited in the report include overestimating one’s retirement income, being too conservative or too aggressive in investments, setting unrealistic return expectations, forgetting to factor in the actual costs of healthcare and real estate, failing to understand income sources, and relying too heavily on public benefits.

What Can I Do to Improve My Retirement Security?

While you can’t stop the population from aging or balance the national budget, there are ways that you can improve your retirement security.

Start Saving Early

You should start saving for retirement by age 25 to maximize benefits and the power of compounding interest. However, many Americans start much later or don’t participate in a retirement plan at all. If your employer offers a plan, contribute as early as possible. If you are self-employed or your employer doesn’t offer a plan, consider a traditional IRA, ROTH IRA, or a solo 401(k).

Set Realistic Retirement Goals

Be practical about the amount of money you will need to retire. Consider your current lifestyle and whether or not you will be able to maintain that lifestyle in retirement. Don’t expect Social Security to sustain you.

If you’ve prematurely taken money out of your account or your contributions are low, you may want to take advantage of auto-escalation, which increases your contributions by a certain percentage each year. You can also utilize catch-up contributions to maximize your savings.

Examine Your Investment Portfolio

Are you investing correctly and with an appropriate amount of risk for your age? Are you diversifying your assets to stabilize your investments against market volatility? Perhaps automatic monthly investment contributions are a possibility for you.

Despite America’s retirement crisis, you can still take the necessary steps to secure your financial future and spend carefree days on the golf course with other retirees in Florida.

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[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can view at your leisure, and each includes a comprehensive customer PowerPoint about the topic):

1. Goal-Based Investing — Planning for Key Life Events 
2. Basic Investment Principles 101 — From Asset Allocations to Zero Coupon Bonds 
3. Using Your Assets for Good: Incorporating Charitable Giving Into Your Financial or Estate Plan 

This is an updated version of an article originally published on March 11, 2015 and previously updated on August 8, 2019.]

©2023. DailyDAC^TM, LLC d/b/a/ Financial Poise^TM. This article is subject to the disclaimers found here.