Are Americans Facing a Retirement Crisis?

Are Americans facing a retirement savings crisis?  The answer to that question depends on who you ask, and perhaps that individual’s prospects for retirement.  The Wall Street Journal recently asked two prominent economists if Americans were facing a retirement savings crisis.  Alicia Munnell, director of Boston College’s Center for Retirement Research and Andrew Biggs, resident scholar at the nonprofit American Enterprise Institute shared their thoughts about the topic in the April 24, 2017 WSJ article.

You can imagine the differences in opinion that any group of people might have on such a topic, but economists can really have diverse opinions depending on their interpretation of the data presented.  In the article, Alicia Munnell offered her perspective that Americans were facing a retirement savings crisis while Andrew Biggs shared the opposite opinion.

In support of her argument, Ms. Munnell cited the following reasons for her opinion that Americans were facing a retirement crisis.  Data from the U.S. Federal Reserve’s Survey of Consumer Finances shows that half of today’s working-age households will not be able to maintain their preretirement standard of living during their retirement years.  She also mentioned that traditional pension plans were disappearing and participants in 401(k) plans were often coming up short on retirement savings, with the typical retirement savings balance standing at only $111,000 today.  Finally, she cited the fact that only half of private-sector workers participate in any kind of employer provided plan at their workplace.

Mr. Biggs, on the other hand, has the opinion that most Americans are faring well in retirement and in preparations for retirement.   The evidence Mr. Biggs cites for his opinion is that senior citizens have the lowest poverty rates in the general population, and that three quarters of retirees report to Gallup that they have enough income to live comfortably in retirement.  Additionally, he cites Federal Reserve data showing that the total balances of 401(k)s, pensions, IRAs and other retirement plans rose to 153% of GDP in 2016 from a level of 58% of GDP in 1981.

The famous Mark Twain quotation, “There are three types of lies: lies, damned lies, and statistics.” comes to mind when considering the conclusions these two economists have drawn from the data they selected.  This should not surprise us given that we all interpret and select datasets that match our views of the world.  The article goes on a bit further and asks what policy changes the economists would recommend to improve the retirement prospects of Americans.  Both economists make the usual politically popular (but ineffective) suggestions of reforming Social Security and setting up automatic enrollment in 401(k) plans or alternative retirement plans (government provided, of course).  Ms. Munnell even suggests that the government and policy makers “should encourage nearly everyone to save more and those who can work longer to do so.”  If that is the best advice two prominent economists can provide, then it is no wonder so many Americans are in trouble.

Interestingly enough, the article never mentions that we should better educate Americans on what it takes to successfully retire and achieve financial success.  The system and infrastructure for retirement success is already in place:  employer-sponsored retirement plans, IRAs, public and private pension plans, low-cost investment vehicles, and Social Security.  Financial literacy and education is sorely lacking.

All we need to do is better educate Americans on what it takes to achieve a comfortable retirement and utilize the system already in place.  We can all help friends, family members and colleagues who need a quick financial lesson or a little guidance in saving or investing for retirement.  As always, Bollin Wealth Management stands ready to help educate and guide your friends, colleagues and loved ones.  Please feel free to encourage the people you care about to sign up for our free monthly newsletter, invite them to attend our free Retirement University educational sessions, or encourage them to call us to schedule a free consultation to discuss their financial situation.

Source:  Wall Street Journal