2008April Retirement-A Looming Social Crisis
2008April Retirement-A Looming Social Crisis
Young people aren't saving for retirement.
The Employee Benefit Research Institute (EBRI) recently reported that the group of people with the longest time frame to save for retirement—young workers between the ages of 21 and 24—are the least likely to participate in any kind of workplace retirement plan. Only 29% sign up for their retirement plans at work, compared with 60% of the workforce between the ages of 55 and 64. Single women retire later and have more debt. According to a May 2007 MetLife study of mothers and adult daughters and their attitudes about retirement, women who are married are more likely to retire than single women. Mothers who are married are more likely than unmarried mothers to retire before age 55 (26% vs. 6%), and married daughters are more apt than single daughters to expect to retire before age 60 (13% vs. 8%) and less likely to retire after age 65 (28% vs. 43%). Debt is also a problem. Daughters are almost twice as likely as mothers to have debt of $25,000 or more (22% vs. 12%). Living longer could mean losing Social Security benefits. According to Social Security statistics reported by USA Today, there's a 41% chance that a 62-year-old woman today will live to be 90, while a man has a 29% chance. The publication also reported that retirees who signed up for retirement benefits at the earliest qualifying age of 62 would lose significant benefits due to the longer lifespan—roughly $39,000 in lost benefits for those who live to age 90, and up to $54,000 in lost benefits for those who live to age 95. Nursing home costs increase. According to the AARP Public Policy Institute, the average cost of a nursing home stay is more than $67,000 per year and exceeds $100,000 per year in some urban areas. Assisted-living facilities can cost more than $35,000 per year, while home care agency rates average $37 per hour for a licensed practical nurse and $19 per hour for a home health aide. For those who cannot finance those costs themselves, long-term care insurance might be a worthwhile investment. Health costs rising. Don't ignore out-of-pocket health care costs in retirement, even for those with insurance. The EBRI reported in July 2006 that a couple, both age 65, retiring that month and living to average life expectancy could need as much as $295,000 to cover premiums for health insurance coverage and out-of-pocket expenses during retirement. A couple that lives to 95 could need as much as $550,000. Retirement savings dwindling. And to underscore the need for retirement planning, the EBRI reported last year that many Americans have little money put away in savings or investments. Among workers who participated in the 2007 Retirement Confidence Survey, nearly half reported that the total value of their household's savings and investments—excluding the value of their primary home and any defined-benefit retirement plan—was less than $25,000 (49%). Only one in 10 workers each reported total savings and investments of $25,000-$49,999. Only 14% reported having savings of $250,000 or more. What does this all mean? For the most part, Americans are unprepared for retirement, which means we will all be working longer or trying to seek other means of covering the shortfall we face. In the short run, it makes sense to take better care of our health and try as much as we can to reduce debt and other pressures that get in the way of setting aside money. There is no question that the sooner folks begin to plan and save for retirement, the better off they will be. The Financial Planning Association (FPA) is the membership organization for the financial planning community. Copyright 2008 Financial Planning Association
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