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Is Your Retirement Plan This Messed Up?

Written by Gary North on June 26, 2013

Gary North’s Reality Check

The National Institute on Retirement Security has issued a report: The Retirement Savings Crisis: Is It Worse Than We Think? There is no question about it; it is worse than we think — way, way worse than we think. It is posted here.

The report is divided into two parts. The first part is clear. It is a careful description of the discrepancy between the retirement plans of Americans and the financial resources available to these Americans to fulfill their retirement plans. The discrepancy is greater than I had imagined. In contrast, the second part is an exercise in utter fantasy. It calls for massive federal programs to increase the amount of capital that private firms invest in employees’ retirement programs. In other words, there is a massive discrepancy between the first part of the report and the second part.

Here are some of the highlights from the first part.

Approximately 38,000,000 working households in the United States do not own any retirement assets. This is about 45% of all the working households in the United States. They do not have an IRA. They do not have a 401(k). They do not have anything. In other words, they have made no plans whatsoever to fund their retirements.

If we take into consideration all households in America, meaning the ones that have no retirement savings and the ones that have some retirement savings, the median retirement account balance is $3,000. Got that? $3,000. Americans believe that $3,000 will carry them through retirement, as long as they continue to let those 3,000 precious dollars grow by wise investing. If we talk about people who are 55 years or older and still in the labor force, the total accumulated retirement savings for all of these people is $12,000 (p. 1). This means they have about 12 years, max, to accumulate 8 to 11 times their annual income by the final year of their careers.

The utter impossibility of this situation should be obvious. This is not a slight shortfall. This is a guaranteed head-on collision inside the American social order. That is because the Social Security system is going bankrupt, which the second part of this report categorically denies. There is no possibility that the dreams and schemes of Americans will be fulfilled by the Social Security system.

Even they could could be fulfilled, the Medicare system’s shortfall will completely bankrupt the federal government anyway. Medicare is a huge expense, and this expense is going to be shifted onto the backs of the families of Americans. In other words, not only is Social Security going to go belly-up, the Medicare system is going to go belly-up. This means that the total burden of the Social Security tax system is going to be imposed on workers, but there is going to be a steady increase in the retirement age for these workers. They will pay into the system, and they are not going to get much out.

Meanwhile, the Medicare system, which has to start at age 65, because the private insurance companies kick everybody out of their programs at age 65, will bankrupt the federal government. There is no question about this. The system is over $220 trillion in the hole: Kotlikoff’s 2012 estimate.

With this as background, consider further statistical indicators from the first part of this report. Factor these into your plans, and especially your plans for what happens in American political life, when the Medicare system will overwhelm the entire federal government, and the Social Security trust fund is empty today, not in 20 or 30 years.


The report speaks of a collective retirement savings gap: what is needed vs. what has been saved. Among working households, ages 25 to 64, this range is now somewhere between $7 trillion and $14 trillion, depending on the financial measure. We are talking about the private sector. If we look at existing retirement assets, at least 90% of working households in the United States do not meet the targets (p. 14). Obviously, households that do not have any retirement savings are not meeting the targets. Remember, this is about 45% of all households. But when these households are factored into the total population, then we find that 90% of the population has fallen short, age bracket by age bracket.

(For the rest of my article, click the link.)

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9 thoughts on “Is Your Retirement Plan This Messed Up?

  1. That 45% expects the rest of us to support them in their old age. I do not support that. They need to take care of themselves first.

  2. i have my own retirement and medical savings and i refuse to keep it in any bank. i don't trust anyone to provide my retirement or medical care or expect anyone else to pay for it. i don't trust banks to hold my money either. if i can't afford to pay cash in full at time of purchase i don't need it, no credit cards or loans for me. i am doing better then most i know, it's peaceful not dealing with the red tape and other crap.

  3. Phillip the Bruce says:

    Where did the concept of retirement come from anyway? The only thing remotely resembling it in the Bible is the requirement that Levites could only actively take part in service to the tabernacle/temple from age 30 to age 50.
    Abraham was 140 years old when Isaac married Rebecca. Abraham moved away and started another family, leaving the bulk of his accumulated capital with his heir, Isaac.

  4. Centurian says:

    This is an early warning shot. They are preparing the ground for the FedGov takeover of all retirement and pension programs. A few, like union programs, may be exempted if they meet “federal standards.” The next greatest wealth redistribution in history is right around the corner. First, Obamacare is intentionally designed to fail so that we can all be forced into Medicare and Medicaid, both of which pay below cost. Then, the confiscation of all retirement, 401(k) and pension funds above a predetermined federal “reasonable” retirement income. Accounts will be seized or taxed to a government authorized mean value. The president has already publicly communicated what he thinks a reasonable maximum retirement income is and the GAO has determined that the average person needs about $3MM in his/her account at retirement (based on the faulty assumption that the funds will make 7% per year invested in the stock and bond markets). They are going to have to seize a lot of retirement funds and increase taxes exponentially to get everyone there. If they consider the equity of your property in the equation, it gets even worse. Trouble on the horizon.

  5. You could well be right. The Obama administration looked into it a few years, but I'm not aware of anything being published on their findings.

  6. Ed Shick says:

    Sounds great ! I worked at a major automotive company for 40 years and contributed as much as allowed which at the end was 18 % ,, they paid divdends then that ended they had another company handling our money , I went out on Medical as I had a total Knee and they want young people ,, at that time they told me what my benefits were most never happened , Then the stock started to drop , They did not tell me I got it from a Friend , that they were cutting the value of stock from 48 dollars to 28 dollars and going to send us twenty dollars for each share,, so I called and neither my company nor the financial company said ,, Oh you do not have any Stock , but they would check ,,about 4 years latter they found it but by then it is worth less than 2 dollars a share ,, Who got the twenty dollars a share ?? I am still trying to find out,, i think they want me to Die!

  7. so is he going to put the 3 mil in our retirement account.

  8. And what's your plan? Become rich? Have lots of children?

  9. Doesn't matter a tinker's damn whether people save or not. I did. And would have had over a million dollars to care for myself. Merrill Lynch decided they needed it more than I did and raided it all except a few tens of thousands. There are NO consequences for this thieving behavior. As long as there isn't, does ANYONE think it really does any good to work and save for YOURSELF when OTHER people can claim it as theirs?