America’s Retirement Crisis: Problems and Solutions

Is Your Retirement Security in Trouble?

America is facing a retirement crisis. Less than half of America’s Millennials believe they will have enough money saved for a comfortable retirement, says a survey by Natixis Investment Managers. But it gets worse. The same survey found that only 18% of Gen X believe they will be able to save enough money to retire comfortably. 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. As of 2018, 59.3% of Americans do not have a retirement account or pension, and growing wealth inequality has made it difficult to meet even the minimum savings goal. Additionally, the Natixis survey found that many Millennials and Gen Xers underestimate the amount of money they need to retire, aiming for just $980,466. Include the fact that many Americans have already withdrawn from their retirement plans in order to pay off personal debt, as well as the misconception that you can rely on Social Security, and you have a recipe for disaster.

But there are also forces working outside of your control that can put your retirement security further in jeopardy. A 2018 Global Retirement Index cites five threats:

1. Monetary Policy: Low interest rates and low returns are hurting institutions and individual investors. Low rates hurt future asset values, and pensioners are forced to work longer or live on lower levels of income.
2. Public Debt: A slow recovery from the 2008 financial crisis, as well as growing global debt, means that retirement benefits and social services must compete more and more with other budgetary concerns, including infrastructure, education, etc.
3. Aging Population: The number of people over the age of 65 is expected to increase by 25% as of 2040. More seniors will rely on payments from the system, but younger generations are struggling to contribute to the system at a corresponding necessary rate.
4. Climate Change: Rising sea levels and extreme weather are forgotten threats to retirement security. Major damage to property can severely impact retirement savings and quality of life for those living on the coast or in places like Tornado Alley.
5. Lower Quality of Life: Since the recession, unemployment has risen and healthcare costs have skyrocketed. Seniors will have to face rising costs during retirement due to reduced tax revenues, which fund social services and other programs.

What Can I Do to Improve My Retirement Security?

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

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

Secondly, be realistic 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 your lifestyle.

If you’ve prematurely taken money out of your account, or your contributions are low, then 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.

Finally, 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 your days on the golf course with other retirees in Florida.

[Editor’s Note: To learn more about this and related topics, you may want to attend the following webinars: Goal Based Investing – Planning for Key Life Events, Basic Investment Principles 101 – From Asset Allocation to Zero Coupon Bonds and The Legal & Tax Aspect of Investing: Asset Protection, Estate Planning, and Tax Efficiency. This is an updated version of an article that first appeared on March 11, 2015.]

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