So says a recent Bloomberg story about the retirement finances of Americans, and, indeed, there is ample reason to worry. According to the article, nearly half of those nearing retirement are predicted to run out of money.
Source: airanwright.com
Although we all worry about the government having a fiscal crisis, perhaps we should pay more attention to our onrushing collective personal fiscal crisis. How did everything become so dire? Part of it may have to do with the fact that traditional pension plans have been supplanted in the main by 401k plans:
In 1983, 62 percent of workers had only company-funded pensions, while 12 percent had 401(k)s, the center said. In 2007, those numbers were 17 percent and 63 percent, respectively.
Part of it may have to do with the relatively low level of Social Security benefits available to the average worker:
The average monthly Social Security benefit as of April was $1,067.
On the other hand, the biggest part of it may have to do with pre-retirees not saving enough:
The average 401(k) account balance as of March 31 was $66,900, according to Boston-based Fidelity Investments, which has 11 million participants.
A couple of solutions were mentioned in the article. One possibility is to include an annuity option to generate the highest possible income payout in retirement. However, with the savings levels cited, that’s probably not going to get it done. Another promising possibility is to indicate on the employee statements exactly how much monthly income can be expected from the portfolio. Although it might be a shock for employees on the cusp of retirement, that option might also serve as a wakeup call for workers who are not saving enough and still have enough time to do something about it.
Now that retirement is largely left up to the individual, investing decisions and disciplined saving are more important than ever. If you are not already taking a systematic approach to saving and investing, now would be a good time to start.
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