The idea of retirement in America is becoming increasingly far removed from the idyllic notion of our "golden years." For many, it's now just another source of worry, despair and resignation.
Last month, Ameriprise Financial (AMP) and Wells Fargo (WFC) each separately released ominous retirement surveys. The first reported that respondents aged 40 to 75 in the nation's largest cities were significantly less confident this year than last about their ability to retire; increased feelings of retirement-related anxiety and depression were also reported.
The second report, based on a poll of 1,500 middle-class Americans, declared that when it comes to retirement, "80 is the new 65," with 74% of middle-class respondents expecting to work past the traditional retirement age, and a quarter expecting to work until at least 80 to achieve a comfortable retirement. There was one small ray of hope in those the numbers -- 35% said they expect to work past 65 because they want to, not because they'll need to.
These days, though, even relatively sunny retirement news comes tinged with dark qualifications. A study of retiree attitudes produced by the Society of Actuaries, LIMRA and the International Foundation for Retirement Education found that although confidence was on the rise, financial planning is fundamentally inadequate: Only 45% of respondents believed that their retirement assets would need to last 20 years, the figure given by experts as the smart target. "It's clear that retirees are hoping for the best or even taking an autopilot approach," said one of the study's authors.
Now, USA Today is reporting that "more Americans are finding themselves in their 50s and 60s with practically no money saved for retirement." The last decade saw no growth in the stock market and included two bear-markets that devastated portfolios. Unemployment has been a scourge, preventing many from getting back on their feet after financial adversity. And the torpid real estate market has sucked value from people's homes, undermining their use as financial safety nets.
Jogging headlong into this confluence of horrible economic conditions is the massive Baby Boom generation, setting up a potential nightmare scenario in which the ranks of the retired are swelled by fresh millions of Americans largely unable to pay their expenses.
That danger is real. According to a survey by the Employee Benefit Research Institute, 56% of workers say they have less than $25,000 in savings. This figure is deeply distressing, given how expensive retirement promises to be: Assuming 3% inflation and a 5% annual return from investments, a 65-year-old will need to have $1.1 million saved in order to net an income of $50,000 a year in inflation-adjusted dollars.
Those who simply have insufficient savings are hardly the worst off: 42% of those polled by the EBRI said that their current level of debt is a problem.
Advice for the Far-From-Retirement Crowd
So what can younger people learn from the perilous state of those currently approaching retirement? America's twentysomethings are clearly in need of advice: In a recent survey by the PNC Financial Services Group (PNC), only 23% rated themselves as totally independent, and just 18% expressed confidence that they'll have enough money to live comfortably when it comes time to retire.
Here are some tips for members of Generation Y, an age cohort expected to be the single largest population segment by 2017:
Don't panic now, advises Todd Barnhart, senior vice president at PNC Bank, in a press release accompanying the study. "At a young age," Barnhart says, "time is on your side and you can take full advantage if you manage your spending, start saving and chip away at any debt." Don't waste time beating yourself up over past mistakes, which will probably make you feel more negatively about finances, increasing avoidant behavior and setting up a vicious circle of neglect and pain.
Don't delay. According to one financial planner cited by USA Today, many Baby Boomers got into trouble because of a dismissive attitude towards savings, which contrasts sharply with the Depression-hardened thrift of their parents. Today's young adults have plenty of incentives all around them to inspire them to start saving now.
Plan carefully. The most insidious danger, which can trip up even those with their eyes on the prize, is failing to plan for all the exigencies of retirement. Health care costs are skyrocketing as people are living longer -- two trends that seem likely to continue. Know how long your money will have to last; the answer is probably longer than you think.
Don't rely on Social Security. Already, payments from the government are failing to keep pace with inflation, and Social Security's status as an embattled entitlement makes it the opposite of a safe bet for those early in their careers. Don't lean too hard on this New Deal relic when drawing up your plan.