|
CHICAGO
- Following the job and investing horrors of the last
three years, many Americans fear they will end up in
retirement like Old Mother Hubbard.
But while
their cupboards are likely to contain more than a bone,
a sobering study released Tuesday shows the fantasy
isn't far off the mark. About 47 percent of early baby
boomers, now 56 to 62 years old, are not expected to
have enough money to cover basic living expenses like
food, utilities and health care through retirement.
That's
actually an improvement over seven years ago, but still
a dreadful reality for many.
"Their
Social Security
alone will not pay for all they need," said
Jack VanDerhei
, research director for the
Employee Benefit Research Institute
study.
Members
of Generation X, ranging from 36 to 45 years old, should
be in better shape because they have more time to
prepare. Nevertheless, 44.5 percent of them also are
expected to run out of money, the study said.
Inadequate
savings will be disastrous for individuals who want to
live as comfortably in retirement as they lived their
working years. Even those who have saved adequately
could be affected: New taxes or limits on
Social Security
may be required to help an overburdened system cope with
so many needy people.
Although
middle- and lower-income people are most at risk of
running out of money in retirement, even the
highest-income people, baby boomers now making more than
$72,500
, could be at risk if they have a disease or accident
that requires them to enter a nursing home early in
their retirement years, said VanDerhei, who led the
study. Nursing-home costs average
$200
a day. VanDerhei estimates about 13 percent of the
high-income group would exhaust their savings
prematurely.
When
Social Security
was established in the 1930s, people lived on average to
61.7. Now, the U.S. Census estimates that a 65-year-old
can expect to live to 78.3. About 40 percent of women
live to 90.
Because
people are living longer and fewer will have the
guaranteed pensions that the previous generation
enjoyed, personal savings — either through 401(k)
plans, IRAs or other accounts — are crucial.
"People
haven't saved enough and have invested poorly,"
said VanDerhei.
People
often skip investing when young and then discover the
clock ticking toward retirement around 40, then are too
aggressive.
Prior to
the recession, many baby boomers were trying to catch up
for years of deficient savings by investing heavily in
stocks. But the approach blew up after 2007, when the
stock market crashed 56 percent. The study found that
one in five people over age 55 had 90 percent of their
retirement savings in the stock market.
While the
full stock market, or Wilshire 5000, has climbed 67
percent since the worst point in
March 2009
, investors are still down 27 percent, with
$5.4 trillion
in stock market wealth gone on paper. An investor with a
conservative mix of half stocks and half bonds would be
about back to even.
The
people in the best shape with savings tend to have
401(k) plans, said VanDerhei. With such plans, people
save regularly, while people who must go on their own to
a broker or mutual fund company to start an IRA tend to
procrastinate.
Changes
in government regulations during the last few years have
encouraged employers to enroll employees in 401(k) plans
automatically without asking for permission, and that
has prepared people better for their future, said
VanDerhei.
Large
employers are removing 3 to 6 percent of their
employees' money from paychecks and placing it directly
into a 401(k). And the money is being routed into
so-called target-date mutual funds that invest in a
combination of stocks and bonds designed to get people
ready for retirement.
Because
this happens automatically, people avoid their No. 1
retirement planning enemy: procrastination. Although
people can opt out of the 401(k) plans, fewer than 10
percent do, according to
Hewitt Associates
research.
As a
result, VanDerhei said, more people are in better shape
now for retirement than when he last did his study in
2003. Then, 59 percent of early baby boomers were in
danger of running out of money, versus 47 percent this
year.
VanDerhei
said changes being considered by
Congress
could improve conditions more. Only about 40 percent of
employers offer 401(k) plans, and the changes would let
employees invest automatically in IRAs at small
workplaces.
|
