The retirement crisis is anything but imaginary. With the future of Social Security uncertain and an increasing number of workers approaching retirement, having access to intuitive, low-cost retirement plans along with a sound strategy to work toward retirement goals is more important than ever.
Financial advisors, money managers and other financial services professionals can uniformly attest to the gap that exists between what individual investors expect to live on in retirement and what they are likely to have.
The single biggest fear American retirees have — the single most intensely emotional source of investor anxiety — is that they will not have the resources to fund the quality of life they want in retirement or, even scarier, that they will outlive their savings. They are right to worry. The problem is getting worse, not better.
We are on the precipice of the greatest retirement crisis in American history of the world. The “new normal” for many Americans will be too frail to work, too poor to retire as we witness millions of elderly Americans, the Baby Boomers and others, slipping into poverty in the decades to come.
Given the glaringly undeniable insufficient retirement savings, human physiology and our national demographics, and it is clear that a catastrophic outcome for at least a significant percentage of the elderly population is inevitable. With the average 401k balance for 65 year olds estimated at $25,000 by independent experts, $100,000 if you believe the retirement planning industry – the decades many elders will spend in forced or elected “retirement” will be grim. (*Teresa Ghilarducci, a professor of economics at the New School for Social Research, estimates that 75% of Americans nearing retirement in 2010 had less than $30,000 in their retirement accounts.)
Corporate America and the financial wizards behind the past three decades of so-called retirement innovations, most notably titans of the pension benefits consulting and mutual fund 401k industries, are down-playing just how bad things are already and how much worse they are going to get.
Americans today are aware that corporate pensions have all but been eliminated and the few remaining pensions are at risk as, rest assured, someone is busy trying to figure out how to screw you out of your pension. Even if you are among the lucky few that have a pension, you cannot ensure that it will be there for all the years you’ll need it.
The great 401k experiment has been a disaster and it now apparent that 401k’s will not provide the retirement security as promised. Consider in the 1980’s, when Mutual Fund companies came up with such outrageous materials to peddle funds to workers. Does anyone remember the “Dial Your Own Return” cardboard wheel of fortune that showed investors which Mutual Funds they should select for any given level of return? If it weren’t so tragic, it would be laughable.
The next time you’re out, look at whos bagging your groceries, greeting you at the door of the largest retailer in the world and checking your movie tickets. Are they young high school kids or retirees who had to go back to work to supplement their income or qualify for health insurance? The signs of the impending retirement crisis are all around you.
But unlike a tsunami, it is believed the crisis will come in “waves”. With each successive wave more elderly will drown. The older you are, the harder it is to recover from a setback.
Wave 1: Retirees Come Back To Work
Workers who retired post-2000 realize they cannot possibly live on their meager retirement savings, virtually no interest and limited health benefits and conclude they must go back to work full-time. While these retirees do have pensions, the cost of health insurance, when not subsidized by an employer, is far greater than they had anticipated. For those who are physically and mentally capable of going back to work and are welcomed by their former employers or other employers, this is a plausible survival strategy.
Wave 2: Workers Delay Full Retirement
Many current workers realize they have not saved enough to retire and postpone retirement for a number of years. They still believe, however, that someday they will be able to retire and live off their savings. Although this strategy makes sense for workers who can hang onto their jobs at the same (or better) pay and are healthy enough to keep working, older workers who are forced by employers to agree to demotions, pay cuts or part-time status to stay on, may feel demoralized.
Wave 3: Full Retirement Is Unachievable
Many current workers and retirees at some point realize that they can never fully retire, i.e., stop working altogether, and commit to working part-time for as many of their golden years as possible.
The problem is, of course, that each year more elderly people become too frail to work and fewer employers are interested in hiring them, even on a part-time basis.
Wave 4: Drowning
At some point, lack of savings, lack of employment possibilities and failing health will catch up with the overwhelming majority of the nation’s elders.
You’d think that our elected officials would be hard at work preparing a response. Of course, that’s not happening. To the contrary, conservatives are trying to pare back so-called entitlements that will mushroom in the near future and liberals have failed to acknowledge the crisis or propose any solutions.
Eventually the pain will be so widespread that the crisis will be impossible to ignore. For many, the challenge is to hang in there until help arrives.