— People at all income levels are guilty of not saving
enough for retirement, but it may not be entirely their
shocks — defined as an annual earnings drop of more
than 10 percent — are so common that 96 percent of
working Americans experience four or more of them by the
time they reach age 70, according to research by the
nonprofit National Endowment for Financial Education in
can do everything right, but life is going to
happen," said Bill Hensley, senior director of
education at the endowment. "You may lose your job
or you might have to take time off from work to care for
a loved one. Things will happen that are beyond your
National Endowment for Financial Education study,
conducted by researchers Teresa Ghilarducci and Anthony
Webb, found that almost no one is safe from periods of
lost income due to a health crisis, job loss or other
life transitions during their working years.
researchers linked data from the Survey of Income and
Program Participation — a statistical survey conducted
by the U.S. Census Bureau — with individual earnings
records from the Social Security Administration and the
Internal Revenue Service. Taken together, these data
provide an opportunity to investigate individual
differences in retirement savings while controlling for
differences in employment and earnings history, marital
status, health status and disability history.
and Webb looked at data from 2008 to 2012 with a
weighted sample size of 15.7 million people. They found
only a third of the people in the sample size were able
to participate in a workplace retirement plan, which
they argue could be a contributor to so many people not
having enough money saved for retirement.
savings research often looks for a single factor —
such as medical expenses — to explain why individuals
aren’t saving enough.
this report takes into account that income shocks such
as unemployment, divorce and other earnings changes
often cluster together; and the impacts vary in
magnitude depending on the person’s gender, race and
study made no recommendations or assumptions regarding
how much savings an individual should have at retirement
to their white peers, non-white workers have a greater
risk of not having enough retirement savings.
workers end up with $16,977 less than their white peers;
Asian workers fall short between $11,743 and $41,979;
and Hispanic non-white workers have between $8,280 and
$24,278 less than white workers at retirement.
say consumers shouldn’t automatically drop life
insurance policies after the kids are gone and the
retirement parties are over.
top income earners, the racial impact is more
significant. Non-white workers end up with a deficit
ranging from $19,000 to $54,000 compared to white
workers, the study found. The study did not offer any
rationale to explain the differences among top income
earners. The data available did not offer insight, said
the impact of life events depend heavily on the cushion
one has in wealth and income, the sample also was
divided into three income groups.
top 10 percent of people who were surveyed include
workers earning $80,000 or more. They were more likely
to be white and educated; more likely to work full-time
for a large company; and 45 percent of the top 10
percent had a defined contribution retirement plan.
middle 40 percent earning between $26,532 and $80,000
had three times the assets of the bottom group and 36
percent of them had a defined contribution retirement
7 percent of the bottom 50 percent — those earning
$26,531 or less — have defined contribution retirement
plans. The middle and bottom groups also are more likely
to be disabled, divorced, widowed, separated, have fewer
children and received government assistance.
this is important is it shows the need for better
understanding for financial education, financial
literacy and saving while you have the opportunity to
save, to offset the bumps in the road when things come
up that prohibit saving," Hensley said.
most negative impacts in a person’s working years come
from declines in health, including long-term illness and
a work-limiting disability.
a low- or middle-income worker cannot work, or when
income decreases significantly for any reason, often
they withdraw money from retirement savings accounts —
incurring large penalties — or they stop contributing
to their retirement savings entirely.
that will hurt later.
Americans are and will experience a diminished
retirement because their financial preparedness was
negatively impacted by an economic shock caused by
external factors such as downsizing, assets splitting in
divorce, illness-induced work gaps and even children
returning home, sometimes with grandchildren in tow,
seeking financial support," said Robert Fragasso,
chairman and CEO of Fragasso Financial Advisors in
don’t see that coming and are thus not prepared for
the financial hit that they will take as a result of
those occurrences," Fragasso said.
National Endowment for Financial Education research
shows that it’s not a matter of if some life event
will disrupt a worker’s earnings, but when and how
severe the effect of the income shock will be.
are a lot of factors that influence your ability to save
for retirement," Hensley said. "Knowing it’s
going to happen to 96 percent of us, I would recommend
people save — and save early — because there will be
a time saving for retirement will be more difficult, if