Just in time for Halloween – we have some frightening stats on Retirement preparedness. I’ve copied this excellent article from John Reeves of the investment site “The Motley Fool”. I’ve added my comments IN CAPS. Please pardon the CAPS! I am not shouting, just making it easier to separate my comments. Note, there are additional links throughout.
My comments add in the perspective of Retirement Singularity where we will see;
- Amazing advances in medical technology and treatments
- As a result, a lengthening of healthy life spans
- An increased need for a health care emergency fund to potentially take advantage of breakthroughs before their costs become widely available/affordable
- A likelihood of increased “Creative-Destruction” in job markets due to technology displacing many workers, corporations and even industries
- But an opening up of other job, business and investment opportunities
- An emerging world of extraordinary innovations enabled by technology’s exponential progression
“17 Frightening Facts About Retirement Savings in America
Original article by John Reeves
October 15, 2012 |
Investing great John Bogle, founder of The Vanguard Group and champion of the index fund, believes our nation’s retirement system is headed for a serious train wreck. Anyone who looks objectively at the evidence would have to agree with him.
I recently examined several outstanding research studies on the state of retirement savings in America, and here are some of the alarming facts that I discovered:
- Only 42% of private sector workers age 25 to 64 have any pension coverage in their current job. That’s lower than the 50% who had pension coverage back in 1979.(Source: Center for Retirement Research) .RS: THIS MEANS FUNDING OUR FUTURE IS EVEN MORE OUR OWN RESPONSIBILITY
- 30% of workers in a 2012 study reported that they had less than $1,000 in savings and investments. (Source: Employee Benefit Research Institute) . . . .RS: NO WAY THESE PEOPLE CAN BE THINKING OF “RETIREMENT” AS POSSIBLE. SOME THINK THAT THE CURRENT GLOBAL FINANCIAL PROBLEMS HAVE UNDERCUT SOME PEOPLE’S MOTIVATION TO SAVE. I.E. “IF EVEN THOSE WHO SAVE LOSE MONEY, WHY SHOULD I BOTHER?”
- A 65-year-old couple retiring in 2012 is estimated to need $240,000 to cover medical expenses throughout retirement. (Source: Fidelity Investments) . . . . RS: ONCE WE GET THROUGH THE CURRENT TRANSITION PERIOD TO AN ERA OF MORE WIDELY AVAILABLE ANTI-AGING AND REJUVENATION THERAPIES, THIS COST MAY GO DOWN. WHY? HEALTHIER PEOPLE SPEND LESS. CURRENTLY A LARGE PERCENTAGE OF TOTAL HEALTH-CARE SPENDING HAPPENS IN THE LAST FEW YEARS OF LIFE. HEALTHY LIFE EXTENSION SHOULD BOTH DEFER AND REDUCE COSTS TO THE SYSTEM AND TO YOUR POCKET.
- Just 14% of American workers are very confident they will have enough money to live comfortably in retirement. (Source: Employee Benefit Research Institute) . . .RS: EVEN THOSE “VERY CONFIDENT” MAY NOT BE AS FINANCIALLY INDEPENDENT AS THEY THINK DUE TO “LONGEVITY RISK” OF LONGER LIFE SPANS, AND A LONGER LIFE TO BE EXPOSED TO INFLATION , INVESTMENT SETBACKS AND PENSION PROBLEMS.
- Only 16% of American workers are very confident that their investments will grow in value. (Source: Employee Benefit Research Institute) . .RS: WITH THE LOWEST INTEREST RATES ON RECORD AND RECENT MEMORIES OF WORST MARKET SINCE GREAT DEPRESSION, …NOT TOO SURPRISING. HOWEVER, LACK OF CONFIDENCE MAY COME WITH A MINDSET CLOSED TO POSSIBLE BETTER INVESTMENT IDEAS.
- Half of current retirees surveyed say they left the work force unexpectedly as a result of health problems, disability, or getting laid off. If you think you’ll just “work forever” instead of planning for retirement, you may want to think again. (Source: Employee Benefit Research Institute) . . .RS: GOOD TO PLAN NOW FOR A TRANSITION TO YOUR NEXT JOB/BUSINESS. IDENTIFY YOUR LIFE PASSIONS AND TRY TO ALIGN YOUR LIVELIHOOD TO THOSE PASSIONS. IF YOU CAN DO THIS, THEN YOU ARE NOT REALLY “WORKING” AT ALL!
- For a low earner retiring at 62 — Social Security replaces 40% of pre-retirement earnings. This is unlikely to provide for a comfortable retirement. (Source: Employee Benefit Research Institute) . . .RS: LARGE PERCENTAGE OF RETIREES REPORT THEY NEED 80%+ OF PRE-RETIREMENT INCOME.
- Nearly 75% of retirees have not saved enough and said they would save more if they could do it all over again. (Source: Health and Retirement Study) . . .RS: NEVER TOO LATE. IT IS IMPORTANT TO NOT HAVE THE SAME THOUGHT AS YOU APPROACH AGE 90 AND FEEL LIKE YOU ARE AGE 40.
- More than one-third of all households end up with no employee-sponsored retirement plan at all during their entire work lives and others, who move in and out of coverage, end up with inadequate 401(k) balances. (Source: Center for Retirement Research) . .RS: ONE MODEL IS TO SEE “RETIREMENT” AS A SABBATICAL UNTIL YOUR NEXT LIVELIHOOD. EXPLORE, HAVE FUN, BUT THEN WORK ON YOUR NEXT JOB/BUSINESS BY DEVELOPING SKILLS THAT YOU WILL NEED.
- At age 65 and above, Social Security benefits provide more income than any other source for over 60% of households, regardless of marital status. With an average monthly benefit of $1,230 for retired workers, this indicates that a lot of retirees must be struggling. (Source: Health and Retirement Study) . .RS: YOU WILL WANT EXTRA RETIREMENT SAVINGS FOR HEALTH OPTIMIZATION AND TO DEVELOP YOUR NEXT JOB/BUSINESS. NOT HAVING SAVINGS WILL DRASTICALLY LIMIT YOUR LIFE OPTIONS.
- One-third of households end up entirely dependent on Social Security; for low earners that portion is 75%. (Source: Center for Retirement Research) RS: DITTO
- 21% of workers covered by 401(k) plans choose not to participate. (Source: Center for Retirement Research) .RS: SKEPTICISM OVER INVESTMENTS, LACK OF KNOWLEDGE, LACK OF SAVINGS DISCIPLINE? “PAY YOURSELF FIRST” BY AUTOMATIC DEDUCTIONS HAS ALWAYS BEEN THE MOST EFFECTIVE WAY TO SAVE.
- A typical worker should accumulate about $363,000 by the time he or she retires. According to the Fed, a typical household approaching retirement had 401(k)/IRA balances of only $120,000 in 2010, far short of the projected amount for the individual.(Source: Center for Retirement Research) . .RS: I WOULD SAY THAT YOU CAN’T REALLY CONSIDER YOURSELF “FINANCIALLY INDEPENDENT” UNLESS YOU ARE PART OF THE VERY SMALL PERCENTAGE WITH SAVINGS OF OVER 50 X’S YOUR ANNUAL WITHDRAWAL NEED. IF YOU NEED $1,500 / MONTH FROM YOUR SAVINGS, YOU SHOULD HAVE $900K+ HOWEVER, IF YOU DON’T HAVE THAT, DON’T WORRY. JUST “RE-FRAME” YOUR IDEA OF RETIREMENT FROM GOING ON AN EXTENDED VACATION, TO GOING THROUGH CYCLES OF LEISURE / EDUCATION / LIVELIHOOD … AND KEEP ADDING A BIT TO THE LONG-TERM STUFF.
- In 2002, the mean household wealth of married couples reporting excellent health was approximately three times that of married couples reporting poor health (an average of $500,000 compared with $164,000). (Source: Health and Retirement Study) . . . .RS: OPTIMIZING YOUR HEALTH MAKES SO MUCH SENSE. ELEVATE PROACTIVE HEALTHY ACTIVITIES IN YOUR LIFE. IT MAY SEEM TO COST, BUT IT WILL INCREASE YOUR BIGGEST ASSET – NAMELY YOUR “HUMAN CAPITAL”
- Average household net worth was $31,000 when both partners were in poor health but more than $400,000 when in excellent health. (Source: Health and Retirement Study). RS: DITTO. I REALIZE THE POOR HEALTH MAY HAVE “CAUSED” THE LOWER NET WORTH. BUT IT WORKS BOTH WAYS.
- 60% of workers report that their total household savings and investments, excluding the value of their home and any defined benefit pension, is less than $25,000. (Source: Employee Benefit Research Institute). . RS: NOT ENOUGH! GET MOTIVATED TO BUILD STREAMS OF SUSTAINABLE INCOME THAT WILL SUPPORT A MUCH LONGER LIFESPAN.
- 56% of workers report that they have not attempted to calculate how much money they will need to have saved for a comfortable retirement. (Source: Employee Benefit Research Institute) . .RS: THE CALCULATION IS NOT EASY, BUT ADVISERS CAN HELP AS CAN MANY ONLINE RETIREMENT PLANNING TOOLS. REAL PROBLEM IS THAT PEOPLE SENSE THEY HAVE NO HOPE SO THEY DON’T BOTHER TO PLAN OR SAVE. THE PROBLEM IS THAT THE CURRENT CONCEPTUAL FRAMEWORK OF “RETIREMENT” NEEDS TO CHANGE. NEED TO “REFRAME” RETIREMENT. THIS IS MY MISSION AT RETIREMENT SINGULARITY.
These are just some of the facts that are included in the studies referenced above. For more detail, I’d encourage you to read the studies in their entirety.
One big takeaway is that many Americans are saving far too little for their retirement. And many of those individuals who are saving are making costly errors that result in poor investing returns. Bogle believes that our society tends to be wired for short-term thinking when it’s long-term strategies that are most needed right now in tackling this retirement crisis.”
This article really lays out the crisis of Retirement Planning. However the solution for many if not most people lies in a transformation in how they see their lives unfolding given the emerging Retirement Singularity of 1) Healthy Life Extension and 2) Creative Destruction. Leave your comments, ideas below! Hopefully not too scary.
To read John Reeves article at Motley Fool go to http://www.fool.com/retirement/general/2012/10/15/17-frightening-facts-about-retirement-savings-in-.aspx