A comfortable retirement is becoming more elusive for aging Americans, many of whom will have no choice but to work well into their golden years.
Sparse savings, fewer pension plans, stagnant home values and rising health-care costs have created a scenario in which many of the country’s 70 million-plus baby boomers — who began retiring in earnest in 2011 — will struggle to live as well as their parents in old age.
The National Institute on Retirement Security says “92 percent of working households do not meet conservative retirement savings targets for their age and income.”
“For the first half of that baby boomer wave, their situation may be manageable. In many cases they’ll have an employer-sponsored pension,” said William Wood, a senior lecturer and director for Wright State University’s financial services program.
“The last half are really the ones that are going to have significant issues. The statistics are more than unsettling.”
The National Retirement Risk Index, maintained by the Center for Retirement Research at Boston College, indicates that 53 percent of American households in 2010 were “at risk” of not having enough money to maintain their living standards in retirement.
“It’s a very severe problem,” said Tony Webb, a research economist for the school’s retirement center. He said the 2013 rate won’t change dramatically when it is announced next year.
“If you have a person in their 40s who hasn’t saved a cent, there is no conceivable savings rate that will give them a decent income in retirement, if they choose to retire at current retirement ages.”
Breaking the nest egg
Much of the squeeze on would-be retirees can be traced to a lack of savings. Wood suggests that people save 10 percent of their income for retirement, but one-third of the workforce has no savings set aside, studies show.
Only 57 percent of the workforce even has access to employer-sponsored retirement plans, such as a 401(k), according to the National Institute on Retirement Security. The non-profit estimates that the U.S. retirement savings deficit is as high as $14 trillion.
As a result, many baby boomers — who are reaching retirement age at a rate of 10,000 per day — have no choice but to keep working. In 2013, a record 20 percent of Ohioans 65 and older were in the labor force, meaning they were employed or looking for work, according to the U.S. Bureau of Labor Statistics. That number was 14.7 percent in 2003.
Tami Stutz of Bellbrook, who manages an Aldi food store, is preparing for what lies ahead. Stutz, 51, is saving more now that her children have moved on.
“I started (saving) at probably 2 percent, then once I got my kids out of the house I increased it to 15 to 20 percent,” she said. “The more you can put away, the better.”
Wright State’s Wood said a recent study by Fidelity found that 75 percent of individuals in the 55-to-64 age bracket have less than $30,000 in 401(k) savings.
“For a lot of people, 401(k) plans are not working well. Only about 80 percent of those eligible actually sign up,” Boston College’s Webb said. “Then they have to save enough. The typical contribution rate of 6 percent of salary plus a 50 percent employer match is really not adequate.
“Then the employee has to have the discipline to not take out the money, but lots of people have life crises along the way and break the nest egg.”
Reliance on Social Security
An estimated 1.4 million retired workers in Ohio collect Social Security benefits totaling $1.7 billion each month. But one-third of those seniors receive less than $1,000 per month, according to the Social Security Administration.
That is steady income, but oftentimes there’s nothing else. For 35 percent of retirees, Social Security is the lone source of income. The SSA also reports that 51 percent of Americans do not have access to private pensions.
“The last half of that baby boom wave will face something that’s unique to their circumstance, and that’s poverty,” Wood said. “They’re going to rely on Social Security and will quickly go through whatever IRA and 401(k) money they have. They’ll be essentially down to Social Security, which was never intended to be a living wage.”
Because people are living longer, health care has the potential to drain savings. Almost 70 percent of people turning 65 will need long-term care at some point in their lives, according to the U.S. Department of Health and Human Services.
Michael Manes, owner of Right At Home, a Dayton company that provides in-home health care services, sees firsthand the effects debilitating illnesses can have on families.
“Truthfully, I don’t see it getting much better,” Manes said. “I think the entire social contract has changed. We don’t see as many pensions anymore. We don’t see as much savings, or we see the children of the elderly paying for the home care themselves.”
‘Expect the unexpected’
Americans have fewer places to turn to for retirement savings.
There are 45.1 million older Americans today, according to the federal government. That demographic is projected to grow to 77.4 million by 2033, at which time there will be about two active workers supporting every retired person drawing Social Security.
At the current rate, the trust fund is on pace to run dry within 20 years.
“For a significant percentage of people, their attitude is ‘something will happen, some government program will be invented that will save me from myself,’ ” Wood said. “The government can’t afford that. Even if there were a will, they simply won’t be able to afford that going forward.”
Emma Stauffer of Kettering retired 28 years ago after a 30-year career with General Motors. Her husband, now deceased, worked for the U.S. Postal Service for 40 years.
She is 75 and doing OK because she and her husband saved money.
“You have to start early; we tried to teach our children that,” Stauffer said. “Since I’ve been retired there’s been a lot of cuts to our health care and prescriptions. I’m not in poverty or anything, but I’ve had to trim back. You have to expect the unexpected.”