Retirement is dead

The majority of Americans have little or nothing saved for retirement. This should terrify you.

Let’s lay out some facts first. Among working-age families (ages 32-61), as of 2013, only 53% participated in any kind of retirement plan – most of those are some form of defined-contribution plan (like a 401k), and about half as many have a defined-benefit plan (like a pension). That’s down from 60% in 2001, and probably a few points lower by now. So even as the Boomers are approaching retirement, we have not seen a trend towards saving more. That’s troubling by itself.

But here’s the really crazytown part. Because of egregious wealth inequality, mean figures about American retirement trends are less meaningful. If you look at the median, families that would’ve once been on the verge of retirement (aged 56-61) have a whopping $17,000 saved. Nearly half have literally nothing.

(This is from a great report from the Economic Policy Institute.)

Basically, what has happened here is that employers have mostly done away with pensions and shifted employees to defined-contribution plans (401ks), which puts the onus on employees to save for themselves. (“Pensions” are something of a joke now among millennials bitter that Boomers mostly don’t appreciate how the economic landscape has changed.) 401ks have turned out to be highly unequally distributed, which will surprise no one who lives in the world.

Keep in mind that the median Social Security annual benefit is around $14,000, and the real horror of this situation really comes into focus. As the Boomers age further into retirement, most simply can’t afford to retire. Forget puttering, seeing the grandkids and golf – retirement for most people is going to involve any work they can get and hold on to for as long as possible to pay for mounting medical costs. Prepare to see lots of people hanging on to their jobs into their 80s, especially low-impact, prestige-type gigs. (Think that plum professorship or director role is going to open up when the 60-something currently there retires? Don’t be so sure.)

So picture this: it’s the mid-2020s, and the Boomers are now between 65 and 79. 80% of them are in some sort of crisis. Their medical care and prescriptions are stressing Medicare to its breaking point, probably requiring many billions in additional taxpayer support. You have millions who need assisted living care. Dementia, enormously expensive to treat and care for, is rampant. You’ll have a widespread trend of their millennial children, now raising kids of their own, stretching to either take in or care for mom and dad. Oh, and they have little or no savings, and Social Security is in its own slow-motion crisis of solvency, meaning that their kids (again, us) or, in direct and indirect ways, the public sector will wind up footing many bills.

(Side note: I did an informal poll of some of my millennial peers a while back about how much they expect to get back from Social Security in our old age. Most answers were “none” or 50-ish percent. I personally think Social Security will stick around, but there will definitely come a political movement to abolish it, which I hope fails.)

Honestly, the economic ramifications of this not-so-distant crisis deeply trouble me – let alone the havoc it will cause in American society between a generation that has done little or nothing to prepare for, let alone fix, the mistakes it has caused, and the ones who will have to deal with them (us).

tl;dr: You should start saving a lot more for retirement.



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