There is an astounding deficit of $6.6 trillion in the Americans’ retirement needs compared to their household savings, according to an alliance of workers Retirement USA in a published study on September 15.
In a press conference, Karen Friedman, executive vice president and policy director of the Pension Rights Center mentioned in an interview, “the retirement income deficit is the gap between the pensions and retirement savings that American households have today and what they should have today to be on track to maintain their living standard in retirement. The retirement income deficit shows just how bad the crisis has become.”
The Pension Rights Center is a nonprofit consumer advocacy group that works with the AFL-CIO, Economic Policy Institute, Service Employees International Union and National Committee to Preserve Social Security and Medicare to promote a new system of retirement protection for all workers.
In the private sector 50 percent of the workers have retirement benefits; 44 percent of which represents full-time employees and 6 percent part-time workers, Friedman stated.
Anthony Webb, research economist of Boston College’s Center for Retirement Research stated that the $6.6 trillion represents $90,000 per household of a total of 72 million between ages 32 to 64. The figure does not represent workers 32 years old below based on the methodology used for Center’s National Retirement Risk Index. “The $6.6 trillion is a call to action for us as a country. It’s telling us that the system as a whole isn’t working.” Webb added.
According to Webb, this failure can be associated with the following: “Whereas 401(k) plans can work perfectly well in theory, they tend not to work terribly well in practice. People make mistakes all along the way. If you participate, if you contribute a sizable chunk of your income, if you invest sensibly, if you don’t cash out when you change jobs, then the 401(k) plans can deliver a perfectly adequate pension. The problem is a lot of people make one or more of these mistakes.”
The methodology on retirement deficit is conservative since it does not include health-care and nursing-home costs that Americans may face during retirement. There are assumptions made as to the liquidity of assets to be used to purchase inflation-protected annuity and taking out a reverse mortgage on their home. And the assumption on the amount of earnings people need for retirement which includes detailed tax modeling, additional separate income-replacement targets for the three income classes, single or married couples and one-and two-earner couples.
“Each individual household has to work with what they’ve got. It comes back to the old message: you have to save more” Webb said. He even added, “If you’re an individual household, you cannot reinvent the country’s retirement system. The levers you’ve got, the three choices [are] to save more, to work longer and to accept that you’ll have a drastic fall in your standard of living in retirement.”