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A Day Late & A Dollar Short
Under-prepared Boomers Facing Less-than-shiny Golden Years
August 1, 2012
Haven’t saved enough (or anything) for retirement? Consider this a visit from the Ghost of Your Retirement Future. Yeah, sure, you probably planned on simply working “forever,” but poor health will force a retirement anyway. You’re left with little or no savings, but deeply in debt with a mortgage, medical bills and ever-growing credit card balances. And your only income is a paltry $1,230 check each month from Social Security.
I hope you have a plan B.
A Looming Crisis
This scenario is becoming reality for far too many workers. Thirty percent of American workers have less than $1,000 saved for retirement, while 60 percent have less than $25,000 saved, according to the 2012 Retirement Confidence Survey conducted by the Employee Benefit Research Institute.
And Baby Boomers, who are approaching retirement at lightning speed, are not in great shape either—25 percent of those aged 46–64 have no retirement savings at all, according to Harris Interactive.
Generally, Social Security provides a safety net to prevent the elderly from falling into abject poverty. But it by no means provides the standard of living that higher-income people are accustomed to. Currently, for a retired worker, the average yearly income from Social Security is about $15,000, which compares to a full-time, minimum wage income of $15,080.
The parents of Baby Boomers often had employer pension plans to supplement their Social Security and personal savings. But pension plans are essentially gone with the wind. Even public employees are seeing changes to how pension plans—otherwise known as “defined benefit” plans—are administered and funded.
In Utah, new legislation puts much more of an emphasis on 401(k)s for public employees. As of July 1, 2011, new hires into the public system must choose between a defined contribution plan, in which 100 percent of the employer contribution goes into a 401(k), or a hybrid plan that combines a traditional defined benefit pension with a 401(k).
“The vast majority of public employees have relied on the pension, and now we’re seeing that shift, where they need to get more involved,” says Joel Sheppard, director of education and marketing for Utah Retirement Systems (URS), the organization that administers retirement benefit plans for 180,000 current and retired public workers in Utah.
Pensions are gone, people want to retire earlier and they are living longer, and Social Security is kicking in later. “All of these things are adding pressure incrementally to investors and workers trying to save for retirement,” says Brad Thurber, a financial consultant with D.A. Davidson & Co.
Left on the Table
For many, saving for retirement involves a 401(k) plan offered by an employer. According to the Retirement Confidence Survey, 74 percent of workers are offered a retirement savings plan at work. Of those, 81 percent actually contribute to the plan.
If your employer offers a 401(k) match and you don’t take advantage of it, you’re simply leaving that “free” money on the table.
At Nelson Laboratories in Salt Lake, the 401(k) savings plan is particularly generous. The company will match up to 4 percent of an employee’s salary and there is no vesting period. Even so, only 64 percent of its employees participate in the plan.
“I have a rather young population,” says Tera Sunder, chief people officer for Nelson Labs. The median age of employees at Nelson Labs is 35, and Sunder says many are just not thinking about a retirement that is at least three decades in the future. Instead, they are concerned with making student loan payments or buying their first home.
“People are trying to do the right thing. But the economy has made it hard for people to stay on their course,” she says.
Nevertheless, the company tries to educate its employees about the importance of retirement planning. Once a quarter, the company’s 401(k) vendor comes to give group presentations, and there are also individual time slots available for financial advice and planning. The company has also offered seminars on budgeting and financial goal setting.
“You can’t just have the 401(k),” says Sunder. “You have to talk about why you have it and give people an opportunity to learn more about it.”
Utah Retirement Systems is also engaged in a tremendous educational effort. But while its pre-retirement seminars, aimed at those nearing retirement, are usually filled to capacity, the personal planning seminars for younger employees are not as well attended.
“People just aren’t taking retirement seriously—young people especially. People are racking up debt and not saving,”