Is there a Retirement Crisis?
A recent article by PLANSPONSOR is the next in what appears to be a media blitz of pieces sending a similar message - there is a retirement crisis in this country. It’s not a pleasant picture to think about people retiring without enough money to live on, and this particular article incorporates all of the potential “retirement doomsday” scenarios, such as a lack of coverage (many people do not have access to employer-sponsored retirement plans at all), lack of savings (older employees who haven’t saved enough for retirement, or have no retirement savings outside of Social Security), and a lack of income protection in retirement (people are living longer and avoiding annuities like the plague).
However, as I pointed out in a recent Twitter post, the notion of a retirement crisis is not consistent with my personal experience with retirees. Over the years, I have encountered countless retirees, both professionally and personally. Of that number, not one individual was struggling to survive. In fact, many have the OPPOSITE problem - they actually have more than enough money in retirement and have difficulty spending money (and quite possibly because they read these same media articles telling them they are doomed to run out of money!). Surveys of actual retirees support my experience; if there are a lot of retirees struggling out there, they are not appearing in the data.
So, is the retirement crisis real - or is it media hype? The answer, as is the case with many similar issues, is that there is a bit of truth to both notions. When I posted on Twitter, I received a spirited response from one follower telling me to look at my own client plans to see the number of participants that are nowhere near their savings targets, highlighting that the number of 50-year-olds who are just starting to save is staggering. And, we know that many people who work for smaller employers do not have access to employer-sponsored retirement plan coverage at all. Furthermore, most people are not great with money, so to expect them to magically turn into people who are great with money in retirement is unlikely.
On the flip side, as this article points out, most of the retirement crisis articles are predicated on data showing that many defined contribution account balances are insufficient to support a comfortable retirement, when, in fact, this is just a small piece of the retirement equation. To figure out whether a person will thrive in retirement from a financial perspective, there are many pieces to the puzzle, including: Social Security (while often viewed as a “safety net,” it will actually provide sufficient income by itself for may employees earning less than $40,000 prior to retirement), pension income, income generated by defined contribution retirement plan account balances, earned income (since, for an increasing number of people, retirement is more about what happens next than ceasing to produce income at all), expenses in retirement, degree to which the retiree is insured against financial risks (e.g., long-term care insurance, health insurance, etc.), longevity, familial situation, and taxes, among others. As one of my Twitter followers pointed out, even the decision as to where to retire can be a significant piece of the puzzle in determining whether individuals will have a successful retirement.
So, in the end, while the notion of a retirement crisis has some truth and some hype to it, it almost never hurts to save more. And, if telling people there is a crisis motivates them to put more money aside for retirement, it can’t be a bad thing!
Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.
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