Way too many Americans are afraid of running out of money in retirement. As a result, just 15 percent are "very" confident about their financial futures, according to a new study.
Workers' top retirement fear (51 percent) is "outliving my savings/investments," stated the TransAmerica, 2016 study on American workers and retirement readiness.
The majority of workers (54 percent) plan to work past age 65 (41 percent) or do not plan to retire (13 percent), a finding which is lower than in 2015 (58 percent), but otherwise consistent since 2012 (56 percent).
To help workers better prepare, U.S. companies and the financial industry and are making the case for a turbo-boosted 401(k) plan.
According to the U.S. Census Bureau, only 32 percent of U.S. career professionals are stashing cash away in a 401(k) or another tax-deferred long-term savings plan.
Seventy-one percent of U.S. workforce members work for companies that make 401(k) plans available. The problem is, a significant majority of workers aren’t signing up for those plans, at great risk to their financial futures.
In real dollar terms, the numbers grow more frightening.
“Baby Boomer workers have just $147,000 (estimated median) saved in all household retirement accounts, up from $99,000 in 2012. Twenty-two percent of Baby Boomer workers have less than $50,000 saved,” the Transamerica study stated.
More negative data comes from Fisher Investments' 401(k) Wellness in the Workplace Survey:
* 71 percent of survey respondents failed a basic 401(k) quiz,
* Two-thirds of respondents don't know how to choose the right investments to reach their retirement goals; and,
* 50 percent lack confidence in their retirement planning.
A Retirement Crisis
All those numbers reflect a growing – and very real – retirement crisis among U.S. workers. The question is, what can be done about it, and what role will companies, plan sponsors, retirement savers, and financial advisors play in improving the U.S. retirement landscape?
“The only sure way out is an increase in incomes, which would increase disposable income,” said Nathan Garcia, a fee-only retirement specialist with Westbourne Investments in Alexandria, Va. “Healthcare, education and food have all increased significantly, while at the same time wages have not.”
What really needs to happen, however, is the financial services industry has to undergo a makeover to win back investor confidence, which was lost after nobody was prosecuted during or after the recession, he added.
But resentment against Wall Street – even though it’s understandable – doesn’t entirely explain why so many Americans are turning their backs on retirement savings.
“The problem is not the 401(k) model,” said Ilene Davis, an investment advisor based in Cocoa, Fla. “The problem is selfish, ignorant people who feel the world owes them a living and have no clue how much funding even a modest retirement will need in personal savings. They just want their pensions back so they don't have to be responsible.”
Davis has a harsh prescription for a retirement fix, but many Americans may not like it.
“My solution is to change the rules so that each person is responsible for his own retirement, and no one gets benefits based on someone else's income or financial efforts,” Davis said.
Turn over Social Security “present value” for each individual person to manage, she said, and make Social Security truly fair and based strictly on what was invested.
“We should have no more high payout ratios because someone had a lower income,” she said. “No more benefits for multiple spouses on one person's earnings. Make it clear individuals are on their own, and you might see changes.
“Otherwise, most Americans will blame their employer, student debt, children needing help, and so on for their lack of personal responsibility.”
Others have more sober solutions that likely have a better chance of becoming government and business policy.
“We need to demand automatic and escalating auto enrollment in these plans, and we need employers to market to their employees that their raises should go directly into the retirement plans,” said Joshua Scheinker, founder of Scheinker Investment Partners in Baltimore.
Maybe the best idea to get lax U.S. retirement savers off the mat and into the game is technology.
“The inability to foresee what retirement will be like means few people come to terms with the reality and therefore tend to put off saving,” said Tom Foster, a retirement specialist with Mass Mutual Life Insurance, in Enfield, Conn. “That’s why MassMutual has introduced an ‘aging app,’ which allows people to see what they can expect to look like at age 65.”
Americans soft on retirement savings may get a much-need “sense of urgency” boost, and that’s a good first step in any retirement planning motivational campaign.
Brian O'Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC's Guide to Creating Wealth. He's a regular contributor to major media business platforms, including CBS News, The Street.com, and Bloomberg. Brian may be contacted at [email protected]
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