Shortfalls in Retirement Savings Are Significant

The Center for Retirement Research (CRR) estimates that 36 percent of high-income households - those with a median income of $117,000 - won't be able to live as well in retirement as they do today. Among middle-income households, 40 percent are at risk of having to downsize, while 53 percent of low-income households are likely to fall short.

In a report released Tuesday, CRR notes that only 20 percent of those who were between ages 51 and 61 in 1992 were at risk of falling short of money in retirement. Today, 32 percent are.

Why the increase? Munnell points to the shift from traditional pension plans to 401(k)s. Plus, she notes, people are living longer, and Medicare and taxes will take a bigger slice out of Social Security checks.

In another report released Tuesday, the Employee Benefit Research Institute (EBRI) and the Investment Company Institute showed that while 401(k) balances have increased, they are still low. For example, among long-tenured employees in their 50s who make between $60,000 and $80,000 a year, their median 401(k) balance in 2006 was just under $164,000.

But a 51-year old who makes $80,000 but only has $164,000 in savings would need to put away 23 percent of his salary - or close to $19,000 a year - if he wanted to retire at 65, according to savings guidelines from Ibbotson Associates. That would give him enough money, in combination with his Social Security benefits, to live on 80 percent of his pre-retirement income minus his annual 401(k) contribution.

This report is not a surprise. With so few people now being covered by pension plans this was to be expected. People simply do not have the available funds to put more money into 401(k) plans. I believe this situation will get even worse in the coming decades when even less people will be participants in traditional pension plans.

This is an interesting article and should be read completely.

Personal Savings Rate Numbers cause For Concern

The United States personal savings rate was a negative 1% for the first quarter of 2007. Middle and lower class Americans are finding it necessary to take from their savings to finance their daily lives.

"The amount of money Americans save as a percentage of their income has been declining for almost two years, and the March figures clearly demonstrate that we're not making any headway," Jeff Seely said. "A recent ShareBuilder survey found that over half of America does not have a financial game plan for their future. In fact, one in four Americans have no savings at all according to the latest retirement confidence survey from EBRI*. Combined with the negative savings rate, this lack of planning for the future could have severe consequences for the average American's retirement security."

I think the savings rate shows how under stress the middle and lower classes are in the United States today. With home prices, property taxes and medical care at record price levels and stagnant wages how can the average person save?

As recently as the 1980s, Americans' savings rate was stable at around 10 percent. In 2005, it sunk below zero. This marks the eighth consecutive quarter during which the U.S. personal savings rate was negative. The only other time in U.S. history when the savings rate has been this low for such a sustained period of time was during the Great Depression.

This is a dangerous trend that could lead the United States economy into recession when there is little to no more savings available for the average American family.

Read the rest of this article here.

Most People Not Ready For Retirement

Everyone needs to read this article

Overall, 40 percent of respondents said they are not currently saving for retirement while 34 percent said they didn't have any retirement money saved whatsoever. A full 25 percent, meanwhile, said they had no savings at all - retirement or otherwise.

With the end of traditional pensions fast approaching and the inability for Americans to both support their lifestyle and save for retirement are we headed for a time when the elderly poor population will explode? This seems very likely if current trends continue.