This is not a cheerful commentary, nor is it one with a solution. If there is a solution, it almost has to involve the federal government, and that will not please some.
Americans are not saving nearly as much as they will need for retirement, and they are not managing what little they have particularly well. And, the stock markets may not cooperate. While the stock market has had five or so glorious years since the 2008 recession, there are no guarantees that will continue. Right now, it is not.
Investment advisers, knowledgeable, have been consistently surprised that the double-digit market run lasted as long as it did.
If the goal is to have about half the income that the final few employment years will provide, almost all Americans will fall short. The 4 to 6 percent of salary that some employees are sufficiently disciplined to set aside is inadequate. An employer match helps, and should always be taken to the maximum, but the total still falls short. That is for individuals working for companies that offer 401(k) programs. This is a country of small businesses, many without that retirement-plan opportunity.
With the stock market largely flat in recent months, those limited assets are not growing. The 1½ or 2 percent increase for equities is not much more than what is produced from dividends. Factor in inflation, small as it is and has been in recent years, and the purchasing power of plans are not increasing at all.
Nor do Americans show much interest in managing their 401(k) assets. Most plan-holders seldom review their plan’s holdings and do not make adjustments. Too-frequent trading is always a mistake, but most plan-holders do nothing. The most successful plan management created modifies plans by steadily reducing a plan’s holding in equities in favor of fixed income as the plan-holder ages. That reduces volatility and increases predictability. Most plan-holders agree with that shift but would not apply the effort to doing it on their own.
Companies which offer a 401(k) plan and want their employees to participate have discovered that the best way to do that is to say to a new hire, “you’re in.” Opting out is less likely to occur than opting in.
None of this speaks well for plan-holders’ interest or skills in providing for retirement. The tax laws could encourage companies to provide additional retirement support, but given the record, it is not clear it would be well-managed by recipients.
Look to Social Security? Well, only if it is increased. Social Security was not designed to fully fund retirement. It was always assumed that a retiree’s savings and family support would be present, as well.
Independent of retirement needs, governments are turning their attention to requiring companies to do more for their employees. A few municipalities have set a gradual increase in the minimum wage, for example. At the federal level, there may be additional required benefits for employees of all but the smallest companies. Without the wage increases during the past decade that have historically come with increased skills and productivity, government is being asked to impose increased benefits for added individual and family purchasing power.
Social Security has been extraordinarily successful; so, too, Medicare. But, is there an appetite to substantially increase Social Security amounts just as so many more Americans move out of the workplace and into retirement? Many will say no.
The dilemma is that so few Americans are saving what they will need for a reasonably comfortable retirement. Will they accept that when the time comes?
