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The United States Retirement Crisis By: Kevin Sullivan
is facing a crisis in its effort to fulfill the needs and desires of individuals to have a financially secure retirement. Factually speaking, people’s life expectancies (LE) are advancing by 1 year for every 5. As an example, if you were born in 1947 your LE is 85; 1957, 88; 1967, 91; 1977, 94; 1987, 97; 1997, 100; and 2007, 103. I was born in 1960, take very good care of myself physically, eat right, and generally have a healthy lifestyle. That means I’ll likely live beyond life expectancy, which is about 89.
shown that 10-15% of an individual’s annual salary saved annually is required to fulfill retirement income needs, yet few people save that much. Women specifically are in even greater danger. Globally, retirement balances for women are 3040% lower than men. The primary reason? Disparity of income between women and men performing the same jobs and higher percentages of women out of the workforce for periods of time during child bearing years. Additionally, and most importantly, women live longer than men and therefore must spread their savings over a longer duration and therefore require additional savings.
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Most people don’t think that far in advance when planning for a successful retirement and tend to focus on “returns” instead of strategic planning. We call that “Longevity Risk,” by the way. Wikipedia defines Longevity Risk as follows: “A longevity risk risk is any potential risk attached risk attached to risk the increasing life expectancy of pensioners and policy holders, which can eventually result in higher pay-out ratios than expected for many pension funds and insurance companies.” For purposes
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of this article, let’s define Longevity Risk as, “I didn’t plan to live that long.” As a country, there is a huge shortfall of retirement savings. In 2015, the retirement gap was $28 trillion. By 2050, that figure is expected to be $137 trillion. The shortfall includes things like pensions, 401k’s, 403b’s, Social Security Funding, etc.
As an example, in 1960, the ratio of “earners to recipients” in the Social Security system was 5 to 1. (5 workers to 1 recipient). In 1980, it was 3.2 to 1 and in 2013 it was 2.8 to 1. There are other reasons for the shortfall, including a long term, low growth environment, low levels of financial literacy and most importantly, inadequate savings rates. Studies have
How do you fight this problem? Well, I wish it was simple, but it’s not. Planning is first and foremost, followed by discipline with savings and obtaining competent guidance. None of this is easy and requires effort in our already very busy lives. But I hope this brief article gave you pause and motivates you to take some action.
Kevin Sullivan is the president of Infinite Wealth Advisors. Infinite has offices in Mooresville and High Point. For more information, call 877.281.8282 or visit www.infinitewealthadvisors.com.