A comfortable retirement is becoming more elusive for aging Americans, many of whom will have no choice but to work well into their post-Social Security years.
Sparse savings, fewer companies offering pension plans, longer life-expectancy, stagnant home values and rising health-care costs mean many of the 70 million-plus baby boomers will struggle to live as well as their parents did in old age. The National Institute on Retirement Security says “some 92 percent of working households do not meet conservative retirement savings targets for their age and income.”
The National Retirement Risk Index, maintained by the Center for Retirement Research at Boston College, says 53 percent of American households in 2010 were “at risk” of not having enough money to maintain their living standards in retirement.
“For the first half of that baby boomer wave, their situation may be manageable. In many cases they’ll have an employer-sponsored pension,” said William Wood, a senior lecturer and director for Ohio’s Wright State University financial services program. “The last half are really the ones that are going to have significant issues. The statistics are more than unsettling.”
Wood suggests people save 10 percent of their income for retirement, but studies show one-third of the workforce has no savings set aside.
“It’s a very severe problem,” said Tony Webb, a research economist for the Boston College school’s retirement center.
“If you have a person in their 40s who hasn’t saved a cent, there is no conceivable savings rate that will give them a decent income in retirement, if they choose to retire at current retirement ages.”
Much of the squeeze on would-be retirees is because of a lack of savings, some of which is because boomers are the “sandwich generation,” said Marc Daner of Alpharetta, the managing director of investments at Wells Fargo. They are caught between still paying for late-born children while also taking care of aging parents, including taking on some of the parents’ expenses.
As a result, many baby boomers — who are reaching retirement age at a rate of 10,000 per day — have no choice but to keep working.
Bureau of Labor statistics show that from 1995 to 2007, the number of older workers on full-time work schedules nearly doubled while the number working part-time rose 19 percent.
Wright State’s Wood said a recent study by Fidelity found that 75 percent of individuals in the 55-to-64 age bracket have less than $30,000 in 401(k) retirement accounts.
“For a lot of people, 401(k) plans are not working well. Only about 80 percent of those eligible actually sign up,” Boston College’s Webb said. “Then they have to save enough. The typical contribution rate of 6 percent of salary plus a 50 percent employer match is really not adequate.”
“Then the employee has to have the discipline to not take out the money, but lots of people have life crises along the way and break the nest egg.”
The Social Security Administration says 51 percent of Americans do not have access to private pensions, and for 35 percent of retirees, Social Security is the lone source of income.
“The last half of that baby boom wave will face something that’s unique to their circumstance, and that’s poverty,” Wood said. “They’re going to rely on Social Security and will quickly go through whatever IRA and 401(k) money they have. They’ll be essentially down to Social Security, which was never intended to be a living wage.”
And those banking on being Social Security-dependent face more bad news. At the current rate of spending, the trust fund is on pace to run dry in 20 years.
“For a significant percentage of people, their attitude is ‘something will happen, some government program will be invented that will save me from myself,’ ” Wood said. “The government can’t afford that. Even if there were a will, they simply won’t be able to afford that going forward.”
Part of the reason is that there are 3.3 workers putting money into the system for every Social Security recipient. By 2040 there will be 2.1 workers to every retiree.
Emma Stauffer of Kettering, Ohio, retired 28 years ago after a 30-year career with General Motors. Her husband, now deceased, worked for the U.S. Postal Service for 40 years.
She is 75 and doing OK because she and her husband saved money.
“You have to start early; we tried to teach our children that,” Stauffer said. “Since I’ve been retired there’s been a lot of cuts to our health care and prescriptions. I’m not in poverty or anything, but I’ve had to trim back. You have to expect the unexpected.”
Christopher Quinn contributed to this article
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