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.

If the U.S. were the advisors’ client, the stern messages might include:

  • Save early and often: The government safety net has a lot of tears in it, and too few of us are fortunate enough to have access to corporate pensions. Americans hoping for a comfortable retirement need to realize that you only get a chance to save once, and they will have to rely largely on their own proactive planning and determination to reach their goals.
  • Know where the risks are: While the 2008 crisis wiped out significant wealth, many of us exacerbated the challenge by tucking assets in cash or bonds, causing us to miss a stock rally now in its fifth year. Nobody has a crystal ball, but a diversified portfolio of stocks, bonds and alternative investments can keep savers on track by reducing risk and producing durable long-term results.
  • Give more Americans a chance: Approximately half of U.S. workers do not have access to employer-sponsored savings vehicles such as 401(k)s. There are tons of proposals out there to increase participation, and lawmakers would do well for their constituents by giving them real consideration. 
  • Use the employer match: Americans who do have workplace plans should take full advantage of employers’ matching contribution programs, which automatically boost one’s nest egg.
  • Follow my advice: Only 23% of workers have obtained advice from a financial professional, according to EBRI. Of those, 27% say they disregarded most of that advice. Shunning expertise can lead to costly long-term mistakes.

Clearly, our retirement destiny rests largely in our own hands.  The sooner we accept this reality and take concrete actions in response, the better for all.
Tracey Flaherty is the senior vice president for retirement strategies at Natixis Global Asset Management in Boston.