Many of Us Likely to Outlive Savings
Nearly three out of five middle-class retirees will probably run out of money if they maintain their pre-retirement lifestyles, a new study from Ernst & Young has concluded.
The study, set to be released Monday, finds that Americans will have to drastically reduce their standard of living before retirement to live comfortably, or even avoid destitution, later in life.
Middle-income Americans entering retirement now will have to reduce their standard of living by an average of 24 percent to minimize their chances of outliving their financial assets, the study found. Workers seven years from retirement will have to cut their spending by even more — 37 percent.
"People are going to have to adapt in a number of ways that they weren't anticipating or hoping for," said Tom Neubig, national director of the Quantitative Economics and Statistics practice at Ernst & Young. "I think a lot of people are hoping to maintain roughly the same standard of living after retirement. Our study suggests they are going to have to make some changes."
And cutting back on spending is no small feat at a time when inflation and the cost of living are rising. Fluctuating investment returns on 401(k)-style plans in this wobbly stock market are not helping matters."
Most people, if they look at their life expectancy and they think they will live to 90, they are nuts to retire at 60. They're going to be living in poverty at 80," said Peter Morici, an economist at the University of Maryland.. "I think it's a wake-up call to baby boomers to get serious about getting their houses in order."
If a married couple is making $75,000 at retirement and relies solely on Social Security, they have a 90 percent chance of running out of money if they maintain their pre-retirement lifestyle. The addition of income aside from Social Security drops the couple's chance to 31 percent.
Sunday, July 13, 2008 - Page updated at 12:00 a.m.
By Nancy Trejos
The Washington Post
http://seattletimes.nwsource.com/text/2008048859_retirees13.html
When the "traditional" American retirement system came into being in the early part of the 20th century, most Americans were living into their mid to late 60s. As a result, the retirement age was set such that most people could retire and enjoy a handfull of comfortable years before passing on.
ReplyDeleteToday most Americans live into their 70s, and many into their 80s or later. As a result, a system that was designed around retirees living an average of 4 or 5 years is unable to keep up with the financial needs of people living 10, 15, 20 or more years past their retirement.
Like it or not, we simply cannot continue to retire at 65 (or 67 for most younger workers) and hope to enjoy the kind of retirement we believe we are entitled to. Not unless we either start saving a large portion of our salary early on or greatly increase the taxes paid to support social security.
Frankly I think the only long-term "fix" is to continue to increase the retirement age past 67. For those workers who save enough, early retirement will remain an option. For others who cannot, or will not, put aside enough to supplement Social Security and/or a pension plan, retiring at 67 is a dream our economy simply cannot hope to make a reality.
Of course this is not going to be popular with most Americans, but popularity and reality are often at odds.
This really is an interesting article! Lots of countries in the world are facing similar problems. In Germany we have a retirement system which is based on the younger working population. The people who are working pay special taxes which are used as retirement pay for the older. In the last decades this was working well. Nowadays the problem is that there are less and less children being born in Germany which leads to less working people having to support more and more senior citizens. Therefore, his system will not be working for a long time anymore, keeping the inflation in mind, too. Raising the statutory retirement age to 67 is surely helpful but it will not solve the problem. In the last couple of years the state has started to invest in private pension plans. This also raised the awareness of the problem. A lot of young people don't like the tax system a lot. We have to pay lots of taxes to support the senior citizens and at the same time save as much money as we are able to for our own pension...
ReplyDeleteI have a carpets shop in my town, Medan Indonesia. I'm very happy 'cause you adde my blog. Thanks... :)
ReplyDeleteI’m a baby boomer. I just retired 4 years ago. Both my parents died young. Because of that, I realized 20 years ago that I was on my own and needed to prepare for my own retirement. I put a plan into effect and stuck with it. I was able to retire at the age planned.
ReplyDeleteAt my retirement party, many of my peers asked me repeatedly how I was able to do it. I told them what I did.
To be honest with you, I was horrified with the question. My plan didn’t start at the age of 50. It started at 30. I didn’t tell them, but my plan won’t work for them. They’ve already passed the starting line. I don’t know how they’re going to do it.
Changing our Social Security system now isn’t going do anything for the upcoming graduating class. It’s to late.
Vikki
I have a carpets shop in my town, Medan Indonesia. I'm very happy 'cause you adde my blog. Thanks... :)
ReplyDeleteThis really is an interesting article! Lots of countries in the world are facing similar problems. In Germany we have a retirement system which is based on the younger working population. The people who are working pay special taxes which are used as retirement pay for the older. In the last decades this was working well. Nowadays the problem is that there are less and less children being born in Germany which leads to less working people having to support more and more senior citizens. Therefore, his system will not be working for a long time anymore, keeping the inflation in mind, too. Raising the statutory retirement age to 67 is surely helpful but it will not solve the problem. In the last couple of years the state has started to invest in private pension plans. This also raised the awareness of the problem. A lot of young people don't like the tax system a lot. We have to pay lots of taxes to support the senior citizens and at the same time save as much money as we are able to for our own pension...
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