Retirement issues have been in the news lately, and although statistics are available, crucial factors are missing—namely, the people that start retirement planning at the beginning of their work life instead of 10 or 20 years before retirement age.
Retirement experts state that it is not that younger people do not want to plan for their retirement, but that they do not have the wherewithal to start saving.
The Employee Benefit Research Institute (EBRI) reported in their Retirement Confidence Survey that more than one-half of those polled said they earn just enough to cover everyday obligations. Others stated that they are in the midst of paying off mortgages and other debt, and in both cases, saving for retirement was out of the question.
“In the aggregate, worker savings remain low, and only a minority appears to be taking basic steps to prepare for retirement,” stated the EBRI mid-March survey report.
Among those surveyed, 36 percent of the workers have less than $1,000 in savings, an increase of 8 percent over the 2013 survey.
Narrowing it down to workers with incomes less than $35,000, 68 percent are among those with less than $1,000 to their name.
Only 18 percent of working-age people are highly confident about having a comfortable retirement. This is below the 27 percent in 2007, but higher than the 13 percent of people polled in 2009.
“Americans’ confidence in their ability to afford a comfortable retirement has rebounded somewhat from the record lows of the past five years. However, this increased level of confidence does not appear to be founded on improved retirement preparations,” according to the EBRI report.
Social Security Not an Entitlement
The EBRI report spoke of entitlement programs, such as Social Security (SS). The name entitlement is a misnomer. The money paid out from that fund does not come from taxpayers’ funds, but from money each individual worker paid into the SS Trust Fund while working.
“By the way, you pay into Social Security. They call it an entitlement, but it’s not an entitlement; you’re paying for it. It’s getting taken out of your paycheck,” said President Barack Obama during a Town Hall Meeting in Cannon Falls, Minn., on Aug. 15, 2011.
The EBRI report stated that SS is the major source of income for 62 percent of all those receiving SS today. But it must be understood that SS is meant only to provide a supplement for retirees and is not meant to be the major source of retirement income.
SS Trust Fund a Deception
The public needs to keep in mind that the Social Security trust fund is backed by the “full faith and credit of the federal government.” However, what does this represent? Is the government able to make good on this promise if push comes to shove?
In reality, there is not a single penny in the trust fund, as the U.S. Treasury moves any excess funds from the monthly taxes paid by Americans—after today’s retirees receive their SS checks—into a general fund. In return, it puts an IOU into the Trust Fund. The government is obligated to pay interest on all the borrowed funds, which is also covered by an IOU.
“The Social Security Trust Fund is a deception. It contains no genuine assets, only government bonds—IOUs that have no value beyond a promise to impose higher taxes on future workers,” stated a 1999 publication by the Heritage Foundation, titled, “The Social Security Trust Fund Fraud.”
Research foundations echo the Heritage Foundation’s contention, stating that the government will need to raise taxes, cut government expenditures, or sell government bonds in order to make good on its IOUs.
According to the latest Trust Fund report, Social Security total Trust Fund IOUs amounted to $2.5 trillion at the end of 2011 and $2.6 trillion at the end of 2012. The Trustees of the report stated that the SS Trust Fund will begin to deplete in 2021 as a result of cost exceeding income, and that it will be completely depleted by 2035.
Pension Funds Going Bust
Another source of retirement income are pension funds, which are established by the employer. Generally, the employer and employee both contribute to this fund. But according to media reports, these funds are vastly underfunded.
According to a recent report by Bridgewater Associates LLP, pension funds must earn around 9 percent on their investments annually to provide future pension benefits, stated a mid-April article on Pension Pulse blog.
Bridgewater predicts that pension funds might earn only around 4 percent. Therefore, 85 percent of these funds will fail within 30 years, leaving retirees without income.
According to a CNBC mid-April article, quoting Alicia Munnell of Boston College, Bridgewater’s research contains “inflammatory numbers which can create an enormous amount of anxiety.”
No matter what researcher and investments firms report, it is obvious—given unemployment numbers and people’s shrinking incomes—that future retirees face a bleak future, being required to work beyond the normal retirement age.