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Retirement
Likely Will Be a Struggle for Many
By Denise Trowbridge, The Columbus Dispatch
June 7, 2006
Forty-three percent of Americans won’t have enough money to live comfortably in retirement, according to research announced yesterday. "For the bottom third of the income scale, that means falling into poverty and not being able to meet basic needs," said Alicia H. Munnell, director of the Center for Retirement Research. "For the middle and upper thirds, it means a lot of discomfort and having to scrimp when you thought you’d be comfortable."
The Center for Retirement Research at Boston College, with funding from Nationwide, has developed a retirement-risk index that measures the number of people who will not have the resources to maintain their current standard of living during retirement.
The center estimates that households will need to replace 73 percent of their preretirement income through Social Security benefits, pension income or 401(k) savings. Those who are "at risk" will not be able to come within 10 percent of that goal.
Generation X, people born between 1965 and 1972 for the purpose of the study, is faring the worst, with 49 percent at risk overall. The number spikes to 60 percent for Gen X-ers making $30,000 a year or less. Baby boomers fare marginally better. One-third of all boomers born before 1955 are at risk, while 44 percent of boomers born 1955 and later are at risk.
The generation difference can be attributed to the decline in Social Security benefits and employer-sponsored pension plans, and the increased reliance on 401(k) plans and personal savings. "People have to support themselves for longer at a time when resources are decreasing," Munnell said. "In theory, 401(k) plans work, but in fact, they don’t. The average balance at retirement is only $60,000, and individuals don’t save outside of that."
A Hewitt Associates study found the median 401(k) balance in 2005 was $27,100, but 25 percent of accounts had balances of less than $5,000. "Generation X and Y are the most at risk because they are the most dependent on 401(k) savings, but they are the least likely to contribute," said Lori Lucas, director of retirement research at Hewitt, a humanresources consulting firm.
"Savings for retirement only occurs to people after all of the other obligations are out of the way, and by then, it’s almost too late," Munnell said. He said he hopes the retirement study is a wake-up
call." Only when people recognize a problem can they change their behavior."
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