April 30, 2012
By Salvatore J. Armao, CPA/PFS, CFP, CFE, CGMA
America is facing a retirement crisis that threatens to collapse the entire financial system if it is not addressed soon. Millions of Baby Boomers are preparing to retire in the next 10 to 15 years. In the past, $1,000,000 was considered to be the target goal for the amount of money needed to retire comfortably.
Today’s advisors are saying that amount isn’t enough as the result of longer life spans and the uncertain
future of Social Security. Most Americans are neither close to saving a million dollars, nor are they on a reasonable track toward doing so.
AS JOE FRIDAY SAID, “JUST THE FACTS, MA’AM”
• Over the next decade, the Baby Boom generation, born between 1946 and 1964, will reach retirement age in numbers greater than any generation;
• 53 percent of them are not confident that they will have the financial resources to live comfortably in retirement;
• 81 percent of Baby Boomers say they will continue working after they retire.
• In a recent Gallup poll, 66 percent of Americans ranked “not having enough money to retire” as their top financial concern; and
• According to a 2007 AARP survey, the 55 and older work force will grow five times faster than the overall work force.
CAN WE DEPEND ON SOCIAL SECURITY?
According to AARP, Social Security provides the majority of income for at least half of Americans over age 65; it is 90 percent or more of income for 43 percent of singles and 22 percent of married couples.
Reliance on Social Security benefits for retirement is being questioned. A solid majority of Americans do not believe that Social Security will pay them benefits when they retire. The large number of Baby Boomers moving toward retirement means that considerable strain will be put on the nation’s Social Security system. This year, Social Security will disburse more in benefits than it receives in payroll taxes. Ensuring Social Security’s long-term viability is absolutely critical.
WHAT ABOUT SAVINGS?
Americans have not saved enough money to retire because they have been too busy drowning in debt. Approximately one-half of all Americans have less than $2,000 saved for retirement. Millions more have less than $25,000 in plans like 401(k). Only 20% have saved $100,000 or more and only 10% have saved $200,000. The typical American household has just over $18,000 in savings. Sixty-one percent of American workers “always or usually” live paycheck to paycheck.
Contributing factors include the Impact of the financial crisis on stock prices and interest rates, the end of many traditional defined benefit plans, and the bursting of the U.S. housing bubble.
WHERE DOES THIS LEAVE US?
According to a survey conducted by the American Institute of CPAs (AICPA), “Boomers have been scarred by the economic turmoil of the past few years and face complex challenges going forward,” said Clark M. Blackman II, chair of the AICPA’s Personal Financial Planning Executive Committee. “While more optimistic about the markets, many Boomers remain uncertain about the U.S. economy and their own situations as they contend with job loss – their own and their children’s – lower home values and rising education costs.”
Unless this crisis is addressed within the next 10 to 15 years, we are going to have a significant increase in homelessness and people looking for support from the government.