Are you saving enough for the golden years?

Sep 18, 2012

The numbers are staggering. Three-quarters of the population approaching retirement (aged 50 to 64) earns less than $53,000 a year. That group has saved an average of $26,000 in their retirement accounts. Even adding in social security, one forecaster estimates retirees will be able to pay only $5 a day for food.

Financial commentator Greg Heberlein and KPLU's Dave Meyer look at the looming retirement crisis on this week's Money Matters.

One fact that hurts the average is that half of that older group has no savings at all. Many switch jobs too often even to qualify for a pension.

Thirty years ago, Congress approved the program allowing individuals to save tax-deferred retirement income on their own. Those are commonly known as 401(k) or 403(b) plans. As a result, many companies dropped or froze their retirement plans. Among private companies, the number of employees covered has fallen by half in 30 years. Government pension plans have been luckier, but declining federal, state and local budgets threaten them.

The huge trend away from standard pensions and toward 401(k)s and Individual Retirement Accounts is threatening a comfortable retirement for millions.

Economists and retirement experts have generated a number of options that could make a secure retirement more certain. But most, if not all, require a private sector-government collaboration or a strictly government intervention. In the current political climate, adoption of any of those proposals is unlikely soon.

For example, a New York labor economist proposed Guaranteed Retirement Accounts. Companies and employees would share in contributing 5 percent a year into an employee’s fund. The government would guarantee a return of 3 percent a year over inflation. Teresa Ghilarducci outlined her idea before Congress a few years ago. It went nowhere.  The best she got was from Washington State Representative Jim McDermott, who called it intriguing.

Another proposal calls for a plan in which the government insures contributions so citizens suffer no loss. Other proposals have been made, but may be so complex as to make them impossible.

With no new practical plan imminent, Americans must redouble their retirement savings. The average American is so busy buying a house, a new car or providing for a child’s education that saving for retirement is an afterthought. Many Americans had gotten used to their companies providing a pension. Instead of cutting expenses and skipping that new residence or auto, Americans continue to spend for today, not save for tomorrow. 

Absent an imaginative intervention, or a retiree catastrophe, the answer remains savings. A 401(k) this year allows those aged 50 or older to put as much as $22,500 in a 401(k), $6,000 in an IRA. But even significantly lower amounts on a regular basis will be beneficial.

Start saving now!