Our golden years may not be so golden when they arrive
By ROBERT TRIGAUX
Published November 24, 2003
Retirement saving advocates seek to promote within the labor force a willingness to set asidescarce resources for some distant age that the worker may or may not reach, for rewards that the workers may or may not achieve, at a price today that the worker may not wish to pay. This is a tough sell.
- Gary Selnow, communications professor, San Francisco State University
Okay, I admit it. I was kicking and screaming (inside my head, at least) last week when I finally went for some retirement counseling. I already know I'm not saving enough - who is? - for those supposed golden years that are suddenly starting to loom a lot closer.
Any financial adviser worth his weight in prospectuses now uses a software program that can quickly crunch your personal savings and assets numbers and deliver a ballpark estimate of your retirement status. Mine, like yours perhaps, was rather lacking. As in money.
In order to retire at 66, live to 85 and enjoy a $40,000 a year income, I must save $339 more a month. Right now. At age 48.
Ouch. So here are my choices. Save more (not likely these days). Spend less (trying, with modest effect). Increase my household income (not holding my breath). Skip the college payments (sorry, son). Play the lottery (somebody's got to win). Or die sooner (you never know).
Which brings me to Gary Selnow's quote that appears at the start of this column about how hard it is to save - and convince others to save - for the distant future.
You know he's right. More than ever, apparently. Overall, just 42 percent of Americans set aside money for retirement. That is the lowest level since 1980. And guess which state in the country boasts the lowest level of participation in employer-based pension or retirement plans? Florida.
In fact, financial experts are suddenly awash in data showing that more Americans are actually doing less to prepare for retirement. I did not know that was possible. But here's a Top 10 of some of the more troubling findings:
10. Fewer choose to participate in 401(k)s. After hitting a recent high in 2001 with 78.7 percent of eligible workers choosing to invest in a 401(k) plan, participation fell to 76.2 percent last year. It dropped again this year to 72.6 percent, according to an annual survey of 3,200 plans by PlanSponsor.com. Small to mid-size 401(k) plans suffered bigger declines in the latest survey.
9. What "comfortable" retirement? Less than four of 10 Americans think they will save enough money to live comfortably in retirement, according to market researchers RoperASW.
8. Rising insecurity saps our will to save. Worries over job security and the recent roller coaster of the stock market are hurting our confidence in putting away money for the future.
7. Corporate scandals, now mutual funds. The shenanigans at Enron, WorldCom and Tyco, among many examples, made us less trusting of (and willing to invest in) business. Now the mutual fund industry - once considered the safe haven for smaller investors keen on long-term returns - is ground zero for fraud and cutting special deals for the wealthy.
6. Just too many options. Businesses rapidly expanded 401(k) and other investment choices for retirement to meet growing worker demands. The average plan sponsors offer 15 mutual fund choices, says the Profit Sharing/401(k) Council of America. The curveball? Too many choices can get too confusing and 401(k) participation tends to decline, according to research conducted by Columbia University assistant professor Sheena Iyengar.
5. Bogus assumptions about inheritance. Look what this newspaper reported in a story dated Dec. 19, 1999: "In the next 40 years, more than $10-trillion will be passed into the hands of the baby boomers, many of whom already are wealthy from decades of bull markets and matching 401(k) plans." Well, so much for that idea. A new AARP survey, reflecting the damage the stock market has inflicted on paper wealth, says relatively few boomers will receive any inheritance. Those who did, based on 2001 numbers, collected a median sum of less than $48,000. One quarter of reported inheritances larger than $100,000 were received by people who already were in the top 20 percent in terms of wealth. Quipped the AARP report: "The rich do appear to get richer."
4. Cashing out early and often. Too many workers who switch jobs tend to take their 401(k) savings in cash (and pay hefty taxes) rather than roll the funds into another retirement savings account. Consulting company Hewitt Associates says that was the unfortunate habit of more than 40 percent of workers who switched jobs last year.
3. Tax changes hurt retirement plans. Setting money aside in 401(k)s, IRAs and other retirement plans was more attractive before federal lawmakers cut the tax rates on capital gains and, more recently, trimmed rates on dividends. That shrunk incentives to save for the golden years. Still, there is talk the Bush administration may revive the idea of new savings plans that would let people exclude most investment income from taxes.
2. Praying home values will keep appreciating. Rather than set aside funds for retirement, some people expect the sharp increases in the values of their homes will continue uninterrupted, bailing them out in their later years, according to RoperASW. That's hardly a reliable, long-term plan.
1. Hard enough to make ends meet. Several years of a weak economy have made it tough for many to think about retirement - much less increasing savings in 401(k)s to make up for likely shortfalls. Among people between 45 to 59 - the time when household and education costs are often peaking - RoperASW says only 41 percent are saving for retirement. That's a drop of 17 percentage points from 2001. Don't forget another big deterrent to saving: years of rising health insurance premiums.
If the retirement situation is sad for the country, it's especially bleak in Florida.
Of the state's 5.9-million wage and salary workers, ages 21 to 64, at private businesses, just 35.4 percent participated last year in an employment-based retirement plan, the Employee Benefit Research Institute says. No state had a lower participation rate.
To help make sense of all this, I turned to pension benefits expert Olivia S. Mitchell. She is - get ready - the executive director of the Pension Research Council, director of the Boettner Center for Pensions and Retirement Security and a professor in the department of insurance and risk management at the Wharton School at the University of Pennsylvania in Philadelphia.
She suggests some employers have reduced or dropped the company match in their 401(k) plans, further reducing the likelihood employees will opt to save. Other employers have frozen their plans, reducing the opportunity for new hires to participate.
"The lack of salary increases due to the recession leaves employees feeling less able to save for retirement," Mitchell added.
Indeed. When I left my retirement counseling appointment last week contemplating a $339 monthly savings shortfall, I was reminded of the words of Professor Selnow about the everyday excuses to avoid retirement planning.
Saving for retirement is a long-term gamble. We live in an we-want-it-now society. Current expenses can overwhelm the best intentions to save.
"Workers suffer little today if they fail to save for tomorrow," Selnow said in a 2003 white paper on retirement planning. "As a result, the pressures of immediate gratification, delayed benefit, the unknown, the uncertain, the uncomfortable, the deferrable, all ally against the wiser choices."
I am writing myself a stern note to deal boldly with my retirement planning. Soon. Really.
