Many have little to no savings as retirement looms
— -- For many Americans, the golden years are quickly taking on a tin-like hue.
After a vicious decade of no growth for the stock market, including two 401(k)-eating bear markets and persistently sky-high unemployment, more Americans are finding themselves in their 50s and 60s with practically no money saved for retirement.
"We were in our 30s, blinked, and now we're our parents' age," says Alan Tipps, a corporate jet pilot who typically earns more than $100,000 a year when he's working. But Tipps, 52, has been laid off three times during the past four years, and says that has forced him to burn through what was in his 401(k) just to "keep the lights on" in his home in Portales, N.M.
Investors of all ages have suffered. But for those close to retirement, it's been especially tough, because they're faced with taking distributions from investment portfolios that in some cases are a fraction of their peak value. Forced early retirements and the near extinction of pensions are making things worse, creating a generation of aging investors in which some have little or no plans for how they're going to pay for retirement.
It gets more ominous, given the other changes Americans are facing. Declining property values have drained home equity that many retirees might have counted on. Meanwhile, the number of people reaching retirement age is soaring as the Baby Boom generation ages.
Saving early and often is the way Americans typically fund their retirement, the biggest financial obligation most will face. Pensions for many have become a thing of the past. Retirement needs vary greatly, but the numbers are universally huge. A 65-year-old retiree would need to have $1.1 million saved to draw $50,000 a year in inflation-adjusted dollars, assuming 3% inflation and a 5% annual return from investments. That's if the investor is lucky enough to get a 5% return, which, given the flat-line returns of stocks the last decade, might give some pause.
Meanwhile, data show that many workers nearing retirement age have saved nowhere near the amount they need, and many have very little savings. More than half of all workers, 56%, say they have less than $25,000 in savings, according to a survey by the Employee Benefit Research Institute.
And the strain is already starting to show up as more American actually retire. More than half of retirees, 54%, report they have less than $25,000 saved. That's up dramatically from 2006, when 42% said they had less than that.
For many Americans approaching retirement age, the increasing gap in savings is eroding confidence that retirement is even possible. Nearly 30% of workers of all ages surveyed aren't confident they'll have enough to retire, the highest level in the 21 years that EBRI has tracked the statistic. That means 36% of workers now expect to have to keep working after age 65, up from 20% in 2001.
Not only are many Americans close to retirement age lacking savings, some are in the hole financially.
The EBRI survey found that 42% of retirees say their current level of debt is a problem.
Double whammy
Financial advisers say they're seeing an increasing number of workers and new retirees with no savings and no plan to dig out of debt. "There are a lot more people behind the eight ball," says Joel Redmond, a financial planner for Key Private Bank in Syracuse, N.Y.
Redmond and other advisers cite a range of factors jeopardizing retirement today:
