Savings crisis

I was blown away by an article I read at today. The article addressed the recent 2007 Retirement Confidence Survey conducted by the Employee Benefit Research Institute and Matthew Greenwald & Associates.

The survey attempted to assess how much workers are saving for retirement. It showed that nearly 50% of all workers saving for retirement have less than $25,000 saved. 68% of those with less than $25,000 saved for retirement are between the ages of 25 and 34, which didn’t surprise me much. But, what did surprise me was that half of workers between 35 and 44 and one third of workers age 45 to 55 and over have less than $25,000 saved. I thought, “What do those folks plan to do in retirement, collect aluminum cans?”

40% of respondents said they are not saving for retirement, and 34% said they didn’t have any retirement money saved at all. 25% said they had no savings at all–for retirement or emergencies or anything! Are these folks playing the lottery or what?!

30% of workers said they thought they would need to have a nest egg worth less than 5 times their current income to live in retirement. Yeh, sure, 5 times current income will work as long as they can get 16% returns in retirement, don’t mind risking a 50% chance of running out of money, and don’t mind having a declining standard of living due to inflation!

27% of workers thought they needed between 5 and 10 times their income in savings. Even assuming 7% returns, 10 times your income in savings risks a 50% chance of running out of money and a declining standard of living due to inflation.

To top it all off, 62% of those surveyed said they expected to receive a pension when they retired, even though only 41% said they knew of a pension they or their spouse had coming. How could 62% think they have a pension coming when only 41% know of a pension coming? It’s beyond me.

The best research I’ve seen says that people should plan to withdraw around 4% of their money each year to successfully navigate their way through retirement without running out of money. According to my calculations, that would require 20 times your current income assuming you spend 80% of your pre-retirement income while retired. I’m also assuming no pension or social security income, which may seem overly conservative until you consider how many people have pensions and the financial Ponzi scheme that social security is.

There’s a saving crisis in this country, and it’s nobody’s fault but the people not saving. I seriously wonder how many of those without savings or with minimal savings have spent as much time thinking about how they will put food on the table and a roof over their head in their golden years as they think about their vacations, home buying, or vehicle purchases.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

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