Study Says Retirement Could Be Far-Fetched for Many Americans
Retirement many not be possible for many Americans.
According to the 2018 Planning & Progress Study by The Northwestern Mutual Life Insurance Company, a Milwaukee-based financial services company, about eight out of 10 Americans are “extremely” or “somewhat” concerned about living comfortably in retirement. (Source: “1 In 3 Americans Have Less Than $5,000 In Retirement Savings,” The Northwestern Mutual Life Insurance Company, May 8, 2018.)
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Sadly, the misery doesn’t end here. There were a few more troubling findings in the study:
- One in three Americans have less than $5,000 in retirement savings
- One in five Americans have no retirement savings whatsoever
- 75% of Americans doubt that social security will be available by the time they retire
- 55% of Americans believe they will have to work past 65
Here’s the thing: this is just one of many studies and surveys finding that many Americans’ retirements could be in jeopardy. There isn’t much optimism going around when it comes to retiring.
Beyond this, look at what’s happening to various U.S. state and city pension funds. They are severely underfunded, with no good solution to the problem.
How underfunded? Well, the American Legislative Exchange Council surveyed 280 state-administered pension funds, which, at the end of 2017, had underfunded liabilities of $6.0 trillion. (Source: “2017 | Unaccountable And Unaffordable,” American Legislative Exchange Council, last accessed August 30, 2018.)
Digging a Little Deeper
Based on the above, one has to wonder how big of an impact it could have on the U.S. government, not to mention the overall economy.
You see, if the retirement woes continue, the U.S. government may have to step in. But unfortunately, the government is facing financial problems itself. At the time of this writing, the U.S. national debt stood at $21.4 trillion. (Source: “The Daily History of the Debt Results,” Treasury Direct, last accessed August 30, 2018.)
If the U.S. government has to bail out people who are looking to retire, it may have to borrow a lot more. It could require $6.0 trillion for state pension funds alone, which would bring the national debt to $27.4 trillion.
And the national debt has to be paid off eventually. So it’s not outside the realm of possibility for taxes to skyrocket immensely in the future. That is, unless the U.S. government tells its creditors that it can’t pay them back.
Americans not having enough money to retire could have severe consequences for the U.S. economy.
According to data from the Bureau of Labor Statistics, older households (those run by individuals 65 and older), spend $45,756 per year, or about $3,800 a month. If we assume that future retirees don’t have much savings, how will they keep spending as much? This could drag down consumption a lot, which—don’t forget—is roughly 70% of the U.S. gross domestic product (GDP). (Source: “Reality check: Here’s what the average retiree spends every month,” MarketWatch, August 25, 2018.)
All I can say at this point is that there appears to be a big crisis waiting to happen. And the longer it’s ignored, the bigger it will get.
