Richard Quinn | Jul 17, 2023
I HAVE TROUBLE accepting things at face value. I like to validate information, checking it against several sources. This is especially true when it comes to all things money- and retirement-related. But it’s not always easy to do.
Do Americans tell the truth about how they spend their money? Do they actually know? Does it really take extreme frugality to save for the future, a talent many folks lack or refuse to embrace?
I look around and, on every block, see thriving businesses providing non-essential services. Within a mile of where I sit, I count five coffee shops, not including the Starbucks. Not one block in my town is without a nail or hair salon, and three new fitness centers have opened in the past year.
Where does their revenue come from when we hear that Americans are cash-strapped, can’t save, have modest retirement accounts and are unprepared for financial emergencies? Something doesn’t add up.
No matter where you look, the story is the same. Retirement for many Americans, and perhaps most, will be no bed of roses. While the few individuals who claim to be retired and financially independent in their 30s or 40s grab the headlines, half or more of Americans face a serious financial challenge if they hope to retire and maintain their standard of living.
According to the Bureau of Labor Statistics, 68% of private industry workers had access to a workplace retirement plan in 2021, with 75% of these folks choosing to join. Fidelity Investments reports that the average 401(k) balance for baby boomers is $215,000, while for Generation X—defined by Fidelity as those ages 43 to 58—it’s $145,500.
One survey found that 55% of Gen Xers expect to be able to retire, but 25% aren’t sure. At the same time, they expect to live off their 401(k) balance plus Social Security. Given their current account balances, their retirement may be frugal indeed.
According to MarketWatch, the median amount of savings—excluding retirement funds—of Americans under age 35 is just $3,240, compared to $6,400 for those ages 55 to 64. That means half of Americans have less than these amounts.
How is it possible that half of us reaching our 60s have less than $6,400 outside of our retirement savings? Where did the money go? How would these folks deal with a financial emergency? Just saving the change in your pocket each day over 40 years should result in more.
At the other end of the spectrum are followers of FIRE, the financial independence-retire early movement. They plan to retire in their 30s or 40s by dedicating up to 70% of their income to savings during their working years.
To be sure, these individuals aren’t earning $40,000 a year. Nevertheless, it takes a good measure of frugality to achieve this rate of savings. Not for me. I surely didn’t want to downsize to a hermitage.
I never aspired to retire at 40. Age 67 was fine with me. A 2021 survey says Generation Y—then ages 25 to 40 and often called millennials—hope to retire at an average age of 59. Fidelity says the average 401(k) balance for this group is $44,900. Better get cracking folks.
For Generation X, ages 41 to 56 at the time of the survey, the average planned retirement age is 60. Baby boomers, ages 57 to 75 at the time, indicated they plan to work longer, with an average expected retirement age of 68.
Overall, workers looking ahead to retirement expect to step away from work at age 65, according to the Employee Benefit Research Institute’s 2023 Retirement Confidence Survey. Yet, while 65 is the anticipated median retirement age among those still employed, retirees reported leaving the workforce at a median age of 62, the survey found.
How accurate are the data regarding saving, retirement expectations and spending, especially when collected through surveys? Does anyone know? When I double-check the claims, my conclusion is those in the workforce hope for the best but are in denial about what it takes to get to retirement.
Oh well, at least all that’s behind me.
Reproduced from HumbleDollar.com
We can’t control what others do and we can’t stop misfortune from striking. But we can control our own actions. Those who are financially prudent will most likely enjoy success, even if events don’t always go their way.
QUINNSCOMMENTARY 
Mr. Quinn, I totally agree with your statement. “my conclusion is those in the workforce hope for the best but are in denial about what it takes to get to retirement.” We retired at 62 three years ago and I am still learning what it takes.
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People laughed, and still do, at Jerry Brown…
“We don’t need less welfare, we need more welfare, and fewer people working.”
We don’t need a coffee shop on every block. It’s a waste of resources. Precious resources. Limited, sometimes irreplaceable resources.
Pay people to stay home, using less fuel and infrastructure. Take care of your own kids instead of dropping them of at a center where some other poor schmuck is wasting resources unnecessarily.
Shorter work weeks, earlier retirement AND… higher pay for the lowest echelons.
“A man must always live by his work, and his wages must at least be sufficient to maintain him. They must even upon most occasions be somewhat more; otherwise it would be impossible for him to bring up a family, and the race of such workmen could not last beyond the first generation.”
Adam Smith
Enlightened self interest.
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Going to a fitness center is better than going to Starbucks since the former is an investment in health. And what good is wealth if you don’t have health?
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However, the solution is apparent.
First, define “retirement”. What does that term mean? Does it mean stopping employment for wages once you’ve reached age 65+ or later? Used to be that people didn’t “retire” until they were no longer physically capable of continued employment, work was much more likely to be blue collar, and folks then lived a sedentary lifestyle, until a death often less than 10 years later.
I first heard it in a presentation by John Shoven, almost 20 years ago at a CEB conference in Las Vegas – ‘people will have to either work until a later age or take a reduction in their standard of living.’ That is true for perhaps 50% – 66% of all in today’s workforce.
A different challenge is labor force participation rates. 64% of prime age workers (25 – 54) were in the workforce in 1948. Then women entered the workforce in droves, so that by 1990, 90% of prime age workers were in the workforce. Today, 83% are in the workforce.
For comparison, 43% of individuals age 55+ were in the workforce in 1948, declining to < 30% by 1993, then increasing back to 38% today.
Finally, labor force participation for those age 65+ was 21.6% in 2008, 26% in February 2020, and declined to 23.2% today.
So, because of a failure to accumulate assets, and a disjointed work history, some will have to work longer, some will have to take a reduction in standard of living, and, importantly, some will have to do both – much like pre-1990 retirements, some will have to work all their life until they can work no more, retire to a sedentary existence, and die soon thereafter.
Attempts by Congress to take more and more and more from some and give more and more and more to those who didn't have retirement preparation as a priority injure the rest of us who worked for 50+ years, paid massive amounts of taxes and "contributions", yet receive disproportionately less "return" on the Social Security, Supplemental Security Income, medicare and Medicaid "insurance" policies.
Worse, the same idiots are on track to increase national debt to ~$50 Trillion by 2035 – probably using deficit spending to continue buying votes.
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