Americans are unprepared for retirement
Thomson Financial News
05.15.08, 1:17 PM ET
MUMBAI (Thomson Financial) – The combination of rapidly approaching retirement and concerns about post-retirement financial security has not translated into more personal savings for most Americans, said Standard & Poor’s in a report.
Titled ‘Older But Not Wiser: Why Americans Remain Dangerously Unprepared For Retirement’, the report states that the average American household savings rate remains near 0 percent.
According to S&P’s chief economist David Wyss, the lack of saving has helped keep economic growth positive but will make it more difficult for older Americans to finance their retirement. Most Americans also continue to rely on the government to provide for their retirement.
‘… although they say they’re unsure about future Medicare and Social Security benefits, they’re doing little to increase their wealth before retirement,’ the report said.
It added that one solution is likely to be more post-retirement work as more retirees seek a so-called bridge job in early retirement.
‘Unfortunately, health and labor market conditions often prevent even those who intend to work from doing so. In addition, in a weakening economy, bridge jobs could be harder to find,’ Wyss said.
Moreover, the report states that only 37 percent of Baby Boomers who are about to enter into the post-employment world have a traditional pension coming from their employer. That’s down from 60 percent in 1983.
In addition, the shift to defined-contribution pensions from traditional defined-benefit ones has had mixed results.
On the plus side, the percentage of households with no pension coverage has declined slightly, to 34 percent from 37 percent in 1983. However, in 2004, the median 401(k) plan for people in the 55 to 64 age group was worth only $60,000 — not enough to provide for much of a retirement, the report noted, adding that in 2006, the average 401(k) balance for people in their 60s was $157,727.
Wyss said the other problem for the near-retired is the poor performance of the asset markets in recent years. The S&P 500 will have its worst decade since the Depression if it closes below 1,469 at year-end 2009.
‘Retiring in a period like such as this strains assets in the best case, and this is far from the best case,’ said Wyss.
The average household had wealth equal to 558 percent of after-tax income at year-end of 2007, down from 569 percent a year earlier and 618 percent at the market peak in 1999,’ he added.