America's Retirement Savings - It's A Cat Food Future

As America's baby boomers head toward their retirement years, I always find it interesting to look at research about how much savings those of us that are middle-aged and older have put away for our twilight years.  A study by the Schwartz Center for Economic Policy Analysis (SCEPA) certainly appears to suggest that a hefty percentage of us, even those with relatively high incomes, have put away just enough money for retirement that we'll be forced to work at Walmart or MacDonald's until they carry us off on a stretcher and lay us out in a pine box.

Here is a chart from the SCEPA report showing the average and median retirement account balances for Americans between the ages of 50 and 64 (termed near retirees), sorted by personal annual income (2010) sourced from the U.S. Census Bureau's Survey of Income and Program Participation:

From the data, you can see that nearly three-quarters of Americans have personal annual incomes of less than $52,201 annually.  For all four income quartiles, near retirees have an average total retirement account balance of $26,395.   If one were to purchase an annuity with the $26,395, invest it at 6 percent with a 3 percent annual fee and 15 years to retirement with a 25 year withdrawal period, the annuity would pay a whopping $1,867 per year or $155.58 per month.  Taking inflation into account, the monthly payment will amount to essentially nothing in 15 years.

One thing that I noted from SCEPA's report was the fact that 50 percent of Americans between the ages of 50 and 64 with incomes less than $27,468 have a median value of zero in their retirement accounts.  While the data shows that the amount saved in retirement accounts rises in tandem with income level, even those in the top quartile of earners have only saved a median of $52,000 and an average of $105,012.  The fact that only a few people have substantial balances in their retirement accounts means that the median amount is much lower than the mean.

Certainly, many Americans will collect their workplace pensions upon retirement.  Unfortunately, this graph from the National Institute on Retirement Security shows that just over half of all private sector employees have access to workplace retirement benefits, the lowest level since 1979:

On top of that, three out of five households that are covered by a workplace pension plan have only a 401(k) benefit, a new high as shown on this graph which also shows that dramatic decrease in the percentage of households covered by both defined benefit and defined contribution pension plans:

This graph shows how severe the retirement savings crisis is:

American working households that fall short of the aggregate savings target necessary for retirement are between $6.8 and $14 trillion short of where they should be as measured by several key measurements.

According to the National Institute on Retirement Security's 2013 study of pensions and retirement security, when all households in America are included, the median retirement account balance for all age groups is, wait for it, $3000 and for those that are near retirement, the balance is only $12,000.  Two-thirds of working households between the ages of 55 and 64 have retirement savings that are less than one times their annual income, a level that is far from what is needed to have a reasonable lifestyle in one's sunset years.

It is no wonder that 85 percent of Americans report that they are concerned about their retirement prospects and that more than half are very concerned.  For many baby boomers (and beyond), the old urban tales about cat food eating seniors is looking to be an increasingly likely prospect.