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Are Your Clients Ready to Retire? Not by a Long Shot
Monday, June 3, 2013
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How could a financial advisor help a new client who wants to retire, but hasn’t saved much, doesn’t know how much to set aside and worries about running out of money in old age?

He or she might start by delivering some hard truths, namely that it’s time to push ‘reset’ on the planning button and look for new ways to boost income and rein in spending. The hardest truth of all may be that the client has to delay their retirement by working a few extra years.  These conversations are taking place in advisors’ offices all across America.

While U.S. workers look forward to retirement, the stark reality is that most of us aren’t saving enough to maintain a similar standard of living when we’re older. And, since the cost of necessities like healthcare is likely to rise, many of us – even those who think they’re in good shape – could be caught short. The U.S. needs to take bold steps to meet the retirement challenge – and soon. If not, there will be serious implications for both individuals and the nation as a whole.

The U.S. Retirement Savings Gap

There’s a huge problem with retirement readiness in America. In fact, a recent study by Natixis Global Asset Management (NGAM) found that the U.S. ranks only 19th worldwide in retirement quality, finishing well behind Norway, the No. 1 nation, and trailing less-affluent nations such as Slovenia and Slovakia.

The low ranking is attributable, in part, to an overall lack of preparedness. According to a recent U.S. Senate report, the country has a retirement savings deficit of $6.6 trillion, the equivalent of $57,000 per household. With this in mind, it’s not surprising that 53% of U.S. workers over the age of 30 are heading in a direction that will leave them unprepared for retirement, an increase from 38% two years ago.

American workers say they’re well aware of the gap. The Employee Benefit Research Institute (EBRI) last month found that 28% of U.S. workers aren’t at all confident about having enough money for a comfortable retirement, an all-time high in the 23-year history of the survey.  Likewise, a 2012 NGAM study revealed that 39% of Americans are very concerned they won’t meet their retirement income goals, and 64% don’t know what they need to have stored away for old age.

There are good reasons for the uncertainty. Especially for baby boomers, the last dozen years have been rough on long-term savings. Two recessions, including the biggest economic decline since the Great Depression, have created enormous losses, with the last one wiping out an estimated 40% of wealth.

Demography, Destiny and Social Security

Where to turn? If Americans expect the government to help them out of their individual dilemmas, they’ll probably be disappointed.

Today, Social Security and Medicare consume 44% of federal budget expenditures, and those programs are projected to absorb 57% of spending by 2022. The estimated increase is largely due to our rapidly aging population. Some 20% of Americans will be over the age of 65 in 2030, up from about 13% today.

As the U.S. gets longer in the tooth, the number of working-age adults per retirees will fall, providing a smaller tax base from which to support retiree programs. Such a system may not be sustainable, and policymakers may have to intervene. Even staunch supporters of Social Security concede that the government may have to slow the increase in individual benefits, essentially cutting them from current levels. 

Don’t Get Left Behind

The combination of limited personal resources and limits on government programs will leave many Americans, and the nation itself, in a precarious position.

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