Pub. 15 2018 Issue 2

F or the vast majority of Amer- icans, financial questions plague them nearly every day. Will I be able to earn enough to live comfortably? Will I be able to pay off any debt that I have? Will I be able to save up enough money? The questions can become even more prevalent and the fears can become even more acute as we get older, particularly as retirement enters the picture. According to recent data, Americans are entering retirement with less savings than the preceding generation for the first time since the presidency of Harry Tru - man. This group of retirees have accrued substantial debt and are often helping to pay off the education of their children as well as dipping into savings to help support their parents. According to The Wall Street Journal, more than 40% of households of people aged 55 through 70 lack the resources to maintain their living standard through retirement. As a result, a larger number of potential retirees will have to stay on the job well past 70, if possible, or take a menial job in their retirement years. This could also result in potential retirees relying more on their children to assist with funding. This data has left many Americans wondering when things changed, when saving for retirement became more difficult, and what we can do about it as a nation. According to The Harvard Business Report, “In a notable shift from earlier decades, labor’s share of income is no longer constant, but has fallen from nearly 65% in the mid-1970s to below 57% in 2017. Though some of this decline reflects measurement limitations, much of the decline is plausibly due to shifts in technology and market structure that have disadvantaged workers. Even as the share of income channeled to labor has declined, the distribution of income has become more unequal. Since the late 1970s, large wage gains have accrued to workers at the top of the distribution, and wages have been declining or stag- nant for the bottom half of the income distribution.” Also, since the mid-2000s, student loan balances have jumped nearly 150 percent, after steady increases since the 1970s. According to a comprehensive study by Boston College’s Center for Retirement Research, 52% of households age 55 and older have no retirement savings. The av- erage retirement savings for an American family is $95,776. However, the median savings for American families is $17,000, so the average is boosted by families with great wealth. Also, Social Security, which was designed to replace only a portion of workers’ pre-retirement savings, pro- vides most of the retirement income for about half of households age 65 and older. Many people have been forced to put all of their income into immediate needs, such as food, rent, clothes, transportation, and helping their children. The concept of the “American Dream” was based upon the notion that individuals could prosper, save money, and pass on their earnings to their children. That is practically impos- sible for many Americans now. According to the Bureau of Labor Statistics, Americans may spend up to $46,000 annually on healthcare. Even more troubling is that only a third of adults over 50 have savings greater than $10,000. Employer-funded pensions are becoming rarer, replaced by 401(k) plans and IRAs, which put the onus on the worker to save and Social Security is becoming less and less. It’s important to remember that the original purpose of Social Security was to supplement around 40% of post-retirement spending. It was supposed to provide a safety net for seniors, to supplement their savings, but many seniors are turning to Social Secu- rity to entirely support their retirement years. According to leading financial website Investopedia, “43 percent of unmarried seniors rely on Social Security to cover 90 percent of their basic needs. A quarter of married couples depend on Social Security to meet most of their expenses.” Approximately 6.4 million American seniors are living at the poverty level, an alarmingly high number. Given the reality that many Baby Boomers are concerned about retirement America’s Retirement Crisis: The Never-Ending Quest to Save By Mark Anderson, Legislative Assistant, New Mexico Bankers Association 17 Issue 2 • 2018 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G N E W M E X I C O R E A L I Z E D R E A M S savings, this concern is naturally going to trickle down to younger generations. A 2018 survey done by TD Ameritrade found that 43% of members of Generation X say they are behind in their savings. Nearly half (49%) are concerned about running out of money once they leave the workforce. Only a third surveyed expect to be secure in retirement. According to the TD Ameritrade survey, only 47% of Baby Boomers feel secure about their retirement. Logically, since Generation X is more concerned than the Baby Boomers about personal finances, then it would only make sense that Millennials will be even more burdened with concern than Gen- eration X. Millennials will face far more student loan debt than previous genera- tions, high healthcare costs, increasing income inequality, impending automa- tion, the possibility of Social Security funds running out, and other trouble- some factors. Every sign is pointing to the retirement crisis getting worse, not better, unfortunately. Another factor that should be omi- nous for retirees is the cost of healthcare. According to a 2016 report by Fidelity Investments, the average 65-year-old couple retiring in the coming years can expect to spend a total, give or take, of $260,000 on healthcare expenses alone throughout their retirement. Medicare figures suggest that the average beneficia - ry will pay $7,620 out of pocket for their healthcare expenses per year, and that figure could go up. Sadly, there seems to be no urgency in Congress to find solu - tions to drastically decrease the costs of health insurance. In fact, there have been calls to drastically cut Medicare in recent proposed budgets. It is difficult to find anything encourag - ing in these various statistics. Clearly, the biggest factors in the retirement crisis are debt, stagnant wages, and absurdly high healthcare costs. Year by year, we see more of America’s financial burden being shifted to average citizens who aren’t able to shoulder it. Something has to change or this crisis will become even more wide-spread. There must be policies put in place that lessen the burden of the average worker. The warning signs have long been there and now it has become a reality. It’s up to us, as Americans, to heed the warning signs and demand solu- tions from our elected officials. n