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(by Kelly Greene and Vipal Monga, The Wall Street Journal) – Workers and employers in the U.S. are bracing for a retirement crisis, even as the stock market sits near highs and the economy shows signs of improvement. …
Fifty-seven percent of U.S. workers surveyed reported less than $25,000 in total household savings and investments excluding their homes, according to a report to be released Tuesday by the Employee Benefit Research Institute. Only 49% reported having so little money saved in 2008.
The survey also found that 28% of Americans have no confidence they will have enough money to retire comfortably – the highest level in the study’s 23-year history.
…Based on another recent report, the Society of Actuaries said that rising life expectancies could add as much as $97 billion to corporate pension liabilities in coming years, an increase of up to 5%.
While Americans are living longer, the extended life spans will make it tougher for workers trying to stretch retirement savings and put additional strains on pension plans [private and government]. …
…The percentage of workers who have saved for retirement plunged to 66% from 75% in 2009, according to the Employee Benefit Research Institute survey. And only about half of the 1,003 workers and 251 retirees surveyed said they were sure they could come up with $2,000 if an unexpected need were to arise in the next month. …
The survey of workers and retirees was conducted in January, even as the U.S. stock market was heading toward new highs.
Many people are struggling to make sure they don’t run out of money in retirement, said Jack VanDerhei, research director at EBRI, a nonprofit in Washington, D.C.
The EBRI survey doesn’t count traditional pensions*, which are designed to provide retirees with steady income throughout their lives. [*A pension is a contract for a fixed sum to be paid regularly to a person, typically following retirement from service until the person dies. Many companies have eliminated traditional pensions (also called a defined benefit plan) in which the company puts aside money for the employee to be paid out monthly over the employees lifetime after retirement. As people increasingly live longer, companies cannot afford to give employees defined benefit pension plans.]
But pensions have become a much smaller component of Americans’ retirement-savings mix over the years. The portion of private-sector U.S. workers [who are given] so-called defined-benefit plans fell to 3% in 2011 from 28% in 1979, according to U.S. Department of Labor data compiled by EBRI.
Companies that still offer pensions might have to kick in more money to account for longer life spans. …
According to the Society of Actuaries, a male who reaches age 65 in 2013 is expected to live an additional 20.5 years, up from 19.5 in the earlier projections. Women turning 65 this year are now expected to live an additional 22.7 years, up from 21.3.
Although the increases might seem small, Bruce Cadenhead, chief retirement actuary with Mercer, a consulting unit of Marsh & McLennan Cos., said they are the largest he has seen in more than 25 years. “It represents a meaningful jump in liabilities,” he said.
Goodyear Tire & Rubber Co. cited the growth in the life expectancy for its plan’s beneficiaries as one reason its global pension-funding gap widened to $3.5 billion last year from $3.1 billion in 2011. A Goodyear spokesman said it made the mortality adjustment “because we saw an increase in [the] actual [lifespan] of our participants [retired employees].” …
The effect of longer life spans on pension obligations has been dwarfed by the impact of declining interest rates over recent years. Because of the way pension obligations are calculated, lower interest rates means that future obligations are higher today.
But interest rates are likely to rise at some point, which will lessen pension obligations. That is less likely with…assumptions [on how long people will live]. …
Individuals face the same problem, Mr. Cadenhead said: “If we’re asking them to provide for their own retirement, they’re living longer, and it takes more money to provide for their own needs over the course of a lifetime.”
Joe LaCascia, a 75-year-old retired insurance broker in Polk City, Fla., said he and his wife thought they would have enough savings outside their life insurance policies to last until age 95.
Now, he estimates he only has enough to last until they’re 85.
He said he is more concerned about what the future holds for his children, a 51-year-old art director-turned-roadie and a 49-year-old third-grade teacher.
“They’re never going to be able to create wealth, other than what our generation leaves them and what they do with it,” he said. “They have more uncertainty than we have.”
Copyright 2013 Dow Jones & Company, Inc. All Rights Reserved. Reprinted here for educational purposes only. Visit the website at wsj.com.
Questions
1. On average, how much do the majority of U.S. workers recently surveyed have in total household savings and investments, excluding their homes?
2. Pension liabilities are future payouts that a pension is obligated to make. A pension run by a company that has a large number of workers nearing retirement has more liabilities than one run by a company with a smaller eligible workforce.
Why have pension liabilities for companies greatly increased in recent years?
3. What percent of workers surveyed recently have saved for retirement?
4. What percent of workers and retirees surveyed said they were sure they could come up with $2,000 if an unexpected need were to arise in the next month?
5. This article gives us information about how much employees have saved, according to a recent survey, and how much they could come up with in the case of an emergency. From the 3rd paragraph: “The survey also found that 28% of Americans have no confidence they will have enough money to retire comfortably—the highest level in the study’s 23-year history.”
No information is given on how old the survey participants are, how much money they make, how much they spend, and what they spend their money on. Why is it important to have these statistics as well?
6. In one way, this information could be discouraging. Instead of causing gloom or fear, what should you take away from this article?
7. Many people say they “can’t afford” to save. List at least 5 items/bills that people could reduce or cut out of their spending.
OPTIONAL: For discussion in class or with a parent.
- What is your savings plan? Do you have a savings account?
- What are some practical ways to increase your savings and how can you eliminate wasteful spending?
Resources
Dave Ramsey gives sound financial advice. Visit his website at: daveramsey.com.
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