Our Dwindling Nest Eggs

Mitchell Tuchman reviews recent projections of retiree financial health from the Social Security Administration:

It is working Americans’ greatest fear: Being dependent on meager Social Security benefits in old age. A surprisingly large number of people will be in that position — a median dependence of 39% in the year 2022 and slightly higher (41%) in 2062, according to a government study. What “dependence” means for the typical household is that 39 cents of each dollar of income they get will come from the government-run retirement plan.

As with all statistics, averages obscure important information. Among the lowest earners, dependence on government income is much higher (52%). Still, even the top fifth of Americans will find that 25% of their income — on average for their group — comes from Social Security.

Nancy Folbre worries that Americans aren’t saving enough for old age:

Persistent unemployment and stagnant wages have left many workers treading water, struggling so hard to stay afloat that they couldn’t open a retirement account even if they wanted to. A new report from the National Institute on Retirement Security, based on analysis of the 2010 Survey of Consumer Finances, shows that about 45 percent of all working-age households don’t hold any retirement account assets, whether in an employer-sponsored 401(k) type plan or an individual retirement account.

Among those 55 to 64 years old, two-thirds of working households with at least one earner have retirement savings less than one year’s income, far below what they will need to maintain their standard of living in retirement. By a variety of measures, most households, even those with defined benefit pensions, are falling far short of the savings they will need.

In Europe, things aren’t much better:

Saving for retirement is “a losing game” for hundreds of millions of European citizens as high charges and taxes destroy the value of pensions, according to the European Federation of Financial Services Users. “If pension savers cannot enjoy [positive] real returns then there is no point in making private provision,” said Guillaume Prache, managing director of EuroFinuse. … Mr Prache said the outlook for pension savings was “grim” as expected returns from bond markets were low or negative and taxes on savings were rising in most European countries, while charges and fees on pension funds showed no signs of falling significantly.