Breaking the Bank: America’s Fading Retirement
PwC’s Retirement in America report found that one in four American adults have no retirement savings (Asymkos). More concerning, however, is that same report estimated that the median retirement savings account balance for those aged 55 to 64 was $120,000, which provides less than $1,000 per month over 15 years of retirement (Asymkos). With rising life expectancies and experts recommending retirement savings that can commonly reach north of one million dollars, these nerve-racking figures demonstrate the amount of work and financial discipline needed to get to a point of financial stability in retirement. In recent years, the issue of retirement preparedness seems to have presented itself in the form of surveys, videos, and articles popping up with concerning headlines about Americans feeling financially “behind” for retirement, anticipating working beyond their target retirement age to support their livelihood, or even never stopping work at all. With lagging financial literacy and a slew of economic conditions that make it difficult for the average American to save, one wonders if the traditional retirement is inching out of reach. Due to a broad variety of issues, the idea of a work-free retirement in America is no longer sustainable, and could even result in higher average retirement ages and more retirees returning to work out of necessity for extra cash.
In his Presidential Statement upon signing the Social Security Act in 1935, Franklin D. Roosevelt noted, “We can never insure one hundred percent of the population against one hundred percent of the […] vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen […] against poverty-ridden old age” (Presidential Statement USA SSA). For decades, social security worked to do just that, and as of December 31, 2022, approximately 48.5 million retired workers received its support, validating the program as a vital piece of retirement funding for individuals (Fact Sheet USA SSA). But now, almost 90 years later, what was once a baseline level of security for millions of beneficiaries is now facing critical threats that reduce its function as a safety net. Due to population aging and a declining birthrate pressuring a program that is funded by taxes from the current workforce’s paychecks, it is estimated that with no change, benefits will be paid in full and on a timely basis until 2034 (merely 11 years from now), at which point the Old-Age & Survivors Insurance (OASI) trust fund is projected to be exhausted and continuing taxes will only pay for 77% of promised benefits (2022 OASDI Trustees Report USA SSA). This is a blow that will impact many who use the payments as extra padding in their retirement budget, but a devastating prospect for the estimated 12.2% of Americans who receive at least 90% of their income from social security benefits (Biggs). Moreover, alternative infrastructure like employee offered pensions, defined contribution plans, and 401ks are often less generous or less accessible due to the risk employers take on with these portfolios. In fact, in March 2020, just 67% of workers in private industries had access to an employer-provided retirement plan, a slightly disturbing statistic considering that they will increasingly become a crucial source of retirement wealth in light of dwindling social security funding (USA BLS). Although it is possible that changes will be made to rejuvenate the social security system, it is a simple fact that without action, it will be one less reliable source of wealth for any who plan to depend upon it in the coming decades, signaling a potential disappearance of existing infrastructure meant to support retirees.
As Roosevelt mentioned, the government cannot protect every citizen from every difficulty. This holds true as individuals cannot solely rely on government intervention to provide for their well-being and must take responsibility for how they manage their money. Unfortunately, this brings about another core problem of this issue: lack of financial literacy in America. Financial literacy plays a significant role in how an individual manages (or fails to manage) their money, but currently, it seems that few actually possess the knowledge required to navigate the complex world of personal finance. As of January 2022, combined test scores from the National Financial Literacy test yielded an average score of 67.5% for all age groups, with 57.5% of participants getting a score less than 70%, which is considered failing (National Financial Educators Council). This translates to other startling statistics, for example that as of June 2022, the household saving rate in America was only about 5.1% (Flynn). Additionally, the Council for Economic Education found in 2022 that only 23 states require some sort of personal finance course to graduate, meaning for the majority of people, unless they seek out the information or are taught by family, friends, or mentors who themselves are financially literate, there is no formal introduction to knowledge that will equip them to optimally manage their money (Council for Economic Education). This is an especially painful setback for people unaware of personal finance tactics in their youth, when they can start building strong budgeting habits and take advantage of retirement strategies like 401k and Roth IRA contributions when compound interest is most in their favor. Simply learning the basics of budgeting and effectively navigating debt could expose people to the idea of preparing for the future. But as the data shows, how can we expect people to know what steps to take towards retirement when we have little infrastructure to reduce the staggering lack of financial literacy across the nation?
A critic of this sentiment may argue that ultimately, the onus is on the individual to educate themselves and take proper steps to retirement, and if they do not do so, they themselves suffer the consequence. While that is true to some extent, it ignores the fact that the damages of retirement unpreparedness don’t simply stop with one person’s inability retire. In actuality, it becomes a compounding societal burden, as those who struggle to build wealth may place a financial burden on relatives or welfare systems. In the case of familial burden, the increased risk of health concerns and rising cost of living causes relatives to support more expensive retirements, sapping them of the ability to provide for themselves. This can trigger cycles of poverty that make it difficult for the next generation to save for retirement, exacerbating economic class differences and indirectly placing burden on welfare systems. If not on family members, struggling retirees instead place burden directly on welfare systems. In this case, it is reasonable to assume that the United States government would not allow a large portion of elderly populations to falter financially in retirement. As such, it is likely that the government would shoulder the burden with interventions to support them. While it may appear to solve the retirement problem, the funding of such interventions could lead to increased taxes or rising costs of living that again place a burden on citizens who were floundering in the first place, an encapsulation of how an individual’s struggle spirals into a societal burden that all must carry, resulting in the implementation of costly government support systems and a suffering economy. This slippery slope demands immediate attention towards improving learning resources for advancing literacy and the bolstering of support systems for retirees. It is much cheaper to invest in preventative measures than to treat a snowballing issue in the future.
Still, even perfect financial literacy or knowledge of retirement preparedness does not guarantee success securing one’s financial future. Considering recent cost of living expenses and inflation increases from the COVID-19 pandemic, even if they wanted to, many Americans lack extra income to invest because of broader economic conditions. As of November 2022, a study showed that 63% of Americans were living paycheck to paycheck, indicating that many are not in a position to put that money towards their future since they are barely managing their current expenses (Dickler). As of January 2022, a survey expected that 56% of Americans could not handle a $1000 emergency with their savings, further suggesting that people are struggling to build small pockets of wealth for the short-term, let alone for long-term retirement plans (Reinicke). Other phenomena like rising mortgage rates and student debt costs further contribute to the challenges people face when allotting between current spending and retirement savings. Accounting for expenses from illness and injury as well as impacts from natural disasters and other emergencies, it becomes easy to see how difficult it is to be ready for the impending expenses the future will demand. Can we rationally expect someone to put money towards retirement when they are trying to balance their entire paycheck between food and shelter? Because of this, it seems almost inevitable that the years people struggle to handle expenses in the present adds extra years of labor to their futures, resulting in delayed retirement ages and for extreme cases, the inability to retire at all. What makes this even more risky is that living expenses change as people age, and there is a higher chance that those who accept that they may have to work longer might not actually have a choice if health issues prevent them from being able to work in the way they anticipated.
Concerns like these can combine into a perfect storm that drastically reduces the chance for people to enjoy a work-free retirement. For Oklahoma resident Tom Croomer, his retirement troubles truly began at the age of 56, when the large aerospace manufacturer he worked at closed just one year before his full pension (Strassmann). While Croomer admits that he should have planned more, the abrupt closure of the company he worked at for 29 years was an unanticipated circumstance beyond his control, and triggered the long battle of him and his wife fighting to make ends meet (Strassmann). Even with his partial pension, social security, and lifestyle downgrades, Croomer is forced to continue a part time job at Walmart at 80 years of age to pay off an impossible mortgage and to supplement the years when they eroded their savings (Strassmann). His wife’s heart blockages and diabetes add the stress of potential health expenses (Strassmann). When asked if the American dream came true for him, Croomer lamented, “I was right at the door, but I never did get to go through it” (Strassmann). In Croomer’s story, the combination of lack of financial preparedness, the risk of social security and pensions, and unanticipated circumstances melded into a situation that stacked the odds against his work-free retirement. The unexpected circumstances the Croomer faced also call to attention another point that is even further beyond the individual’s control, that is, market volatility and economic downturn.
If we also account for the fact that the market itself is unpredictable, the situation gets vastly more unstable. Considering that retirement accounts and savings are often allocated towards stocks, indexes, and other securities, economic downturn (as well as the government’s response or lack of response) can easily consume savings. Even in the past two decades, the dot-com bubble, the 2008 financial crisis, and the COVID-19 pandemic have all had brutal impacts on the US economy. That alone is reasonable to expect, but when combined with a population that lacks financial literacy or struggles to put together savings to mitigate financial emergencies, economic downturns have potential to dig an even deeper hole for those in already dire situations. Even so, those with financial literacy may still suffer, as black swan events can present challenges to simply following traditional financial advice. Consider the COVID-19 Pandemic in which market volatility was rampant. Following the crash in mid-March, government intervention prompted skyrocketing gains amidst crisis, but as interest rates rose to combat increased inflation, the markets saw steep losses. Those who retired early during the period of growth may have seen promising increases in their accounts, but those who held off could be living off the now sustained declines in their portfolio. Unpredictable events like these also take power away from those trying to save, and can throw off targeted retirement dates when situations don’t go as planned.
The impact of these forces culminates to individuals struggling to amass enough wealth to retire. Going forward, it seems likely that the effects of these issues will leave many retiring later in life or simply continuing work to sustain their livelihoods. Thus, the future of retirement in America seems to be in a sort of turmoil. From all directions, whether it be individuals not having the financial literacy to save for the future, government and employer offered programs becoming less generous or potentially disappearing, or economic downturn placing individuals in a position where they cannot rationally contribute to their futures, it seems that there are more barriers than ever before, putting the sustainability of a work-free retirement into question. It is more apparent than ever that systematic changes in bolstering existing retirement resources, increasing financial literacy across the nation, and tackling rising cost of living and the affordability of basic goods are just a few of the difficult steps that must be taken. But without change, Americans may see their opportunity for work-free retirement getting further away, and for some, fading away altogether.
Works Cited
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“67 percent of private industry workers had access to retirement plans in 2020.” U.S. Bureau of Labor Statistics, USA BLS, 1 Mar. 2021, www.bls.gov/opub/ted/2021/67-percent-of-private-industry-workers-had-access-to-retirement-plans-in-2020.htm. Accessed 31 Jan. 2023.
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