Crystal Spraggins, SPHR
According to the Employee Benefit Research Institute’s 24th annual Retirement Confidence Survey, more Americans (18 percent versus 13 percent in 2013) are feeling “very confident” they’ll have enough money in retirement.
But the EBRI also reports that “worker savings remain low, and only a minority appear to be taking basic steps. This increased confidence is observed almost exclusively among those with higher household income … [and is] strongly correlated with household participation in a retirement plan.”
All others, it seems, simply expect to work until they drop.
The EBRI’s report reveals that only 11 percent of 401k account holders have $250,000 or more in their accounts; 36 percent have less than $1,000. Fifty-three percent of workers cited living expenses as they reason they don’t save or don’t save more.
According to some sources, savings amount isn’t the only problem, however.
In “The Crisis in Retirement Planning,” Robert Merton, School of Management Distinguished Professor of Finance at the MIT Sloan School of Management, argues that it doesn’t make sense to expect employees to be investment experts. He says we need smarter products and for employers to shoulder more responsibility. (As someone who managed an employer-controlled profit sharing plan that was later converted to an employee-controlled 401K—in line with benefit trends—I find Merton’s advice a bit ironic, but what do I know?)
Chad Parks, President and CEO of The Online 401K, a retirement plan provider, has developed a documentary hoping to start a conversation about what he definitely sees as a “looming crisis.”
In the film, Laurence Kotlikoff, PhD, Professor of Economics at Boston University, states, “I think a good retirement for the American public is pretty much a fairy tale at this point. Every day we have 10,000 Baby Boomers reaching retirement, collecting their social security benefits. Social security is bankrupt.”
Much ado about nothing?
Still, not everyone is convinced that things are as bad as all that. A May 2014 report by Towers Watson states, “Although clearly some workers are not saving sufficiently to maintain their standards of living throughout retirement, the situation is less dire than a number of studies have suggested … They extrapolate younger workers’ observed savings behavior into the future, ignoring workers’ capacity to catch up after children leave home, the mortgage is paid off, and other early-life obligations have been discharged.”
The authors also question whether all the gloomy talk is discouraging people from saving, thereby exacerbating the situation.
When all is said and done, however, it’s hard to argue with this statement from a 2013 report published by the National Institute on Retirement Security:
“The average working household has virtually no retirement savings. When all households are included—not just households with retirement accounts—the median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households. Two-thirds of working households age 55-64 with at least one earner have retirement savings less than one times their annual income, which is far below what they will need to maintain their standard of living in retirement.”
What to do?
The National Institute on Retirement Security suggests a multi-prong approach, the foundation of which includes public policy that strengthens social security; expands access to low-cost, high-quality retirement plans; and helps low-income workers and families save. Currently only about half of private sector employees have access to an employer-sponsored retirement plan.
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