Americans pay around 40% of their income to various governments. Then they find that they have no savings. At least one-quarter of Americans have no savings for retirement.
Actually, most of these zero-thrift people pay no federal income tax. But they do pay Social Security and Medicare taxes if they work. They hope that when they retire, the government will support them. They trust Congress. Congress has promised them that the government will take care of them. They believe!
What will they do in retirement? Chuck Jaffe asks this.
There’s a big difference between not saving enough and not saving at all.
You will only find out how big that difference is if you live it out, and a new study suggests that more people than ever are doing just that.
The latest COUNTRY Financial Security Index released Thursday showed that one in four Americans, across all age groups, is not saving at all for retirement. A majority of respondents (55%) said they either are not participating in a workplace sponsored retirement plan like a 401(k) or they don’t know if they are in a plan.
In certain age groups, nearly half of respondents no longer believe it’s possible for a typical middle-income family to save for retirement.
Nations can kick problems like this down the road, coming up with stall tactics and delays that ensure trouble comes as far down the line as possible, pushing trouble out of the lifetime of many current adults even as they raise the danger level for future generations.
Individuals, however, need to rely on themselves. Social Security was never intended to be more than a crutch, so relying on it to be the bulk of support is to guarantee that you will limp financially to life’s finish line.
Surveys have long shown that people “aren’t saving enough” by standards defined by the financial planning community. The side that seldom gets discussed in those surveys is that those situations don’t have to play out badly; investors have a tendency to increase their retirement savings as they near the end of their working life — when they no longer have to worry about college tuitions — and so they close the gap.
Moreover, the savings level that financial advisers consider adequate, in general, goes beyond what the average person needs because it assumes a very long, active life span. Falling short of that “perfect” level of savings isn’t a big deal for someone who is shooting for it, because coming reasonably close should ensure a nest egg that is more than adequate.
But the problem with all of these surveys is that they don’t allow for the logical follow-up question, because for folks who are not saving at all for retirement or who knowingly are under-saving with no visible means for recovering, there’s a simple, logical retort: What the heck are you people thinking?
It may seem like a rhetorical question, but it’s not.
(To read the rest of the article, click the link.)