Retirement savings $14 trillion below threshold

CBS

(MoneyWatch) The National Institute on Retirement Security (NIRS) recently released a study that analyzed the state of Americans' retirement savings and compared them to benchmarks gauging progress toward maintaining retirement living standards. The results shouldn't surprise you if you've been following the news on the level of retirement savings prevalent in American households.

The study found that Americans of all ages are falling well short of the savings amount they need to secure their retirement. Still worse, 45 percent of working-age Americans have no retirement savings at all! The estimated gap in needed savings totals $14 trillion if you count only savings set aside specifically for retirement; the gap declines to $6.8 trillion if you consider total net worth, the largest item being home equity.

Focusing on working-age boomers -- those who are 55 to 64 years old -- roughly one-third have no retirement savings at all. Another one-third have retirement savings equal to less than one year's salary. These results are far below the benchmark recommendations developed by financial experts.

Fidelity Investments estimates that to be on track for a comfortable retirement, an individual age 55 should accumulate an amount seven times their annual salary. By age 60, the target is six times salary, with a goal of reaching seven times salary by age 65. AonHewitt estimates that a 65-year-old should accumulate savings equal to 11 times their annual salary to ensure a secure retirement.

One cause of low-retirement-savings levels is the lack of access to employer-based retirement plans, which are at their lowest level since 1979. As of 2011, only 52 percent of all American workers such plans. Of workers lucky enough to have any plan at all, three out of five have only the option of 401(k) plans.

The NIRS study focuses on the policy implications of these results, calling for:

  • strengthening Social Security by increasing revenues and enhancing minimum benefits,
  • closing the coverage gaps in employer-provided retirement plans through automatic savings plans and
  • implementing a credit for savers designed to target low-income households.

I commend the NIRS for conducting a study to identify our retirement challenges, I generally agree with their policy recommendations, and I sincerely wish our country could move in that direction. But the cynic in me says their recommendations just ain't gonna happen, given the lack of interest or will from our lawmakers and their obsession with reducing taxes and downsizing the role of government. Furthermore, most employers aren't willingto share any more money than they need to hire and retain their employees.

And here's another consideration: If all Americans diverted the amounts they really needed to save for a secure retirement from their current spending, would our fragile, consumer-based economy collapse, taking with it the stock market?

One thing is clear to me: We're on our own to secure our futures. Don't look to the government or employers to do anything more than they're already doing to solve our retirement problems. My conclusion isn't based on any ideology. I'm just observing the reality of the world we live in today.

Stay tuned for my next post, which will suggest steps we can personally take to financially survive our retirement years.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.

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