The New American Nightmare

Americans’ confidence in being able to retire comfortably is at a record low, despite official government statistics that the economy is showing signs of improvement and the stock market hitting record highs.  Call it the new American nightmare: Running out of money in retirement is scaring the hell out of record numbers of older workers, forcing them to stay in the workforce.

The Employee Benefit Research Institute recently released its annual survey.  Here are a few highlights (lowlights?) from the survey.

57% of those surveyed report having less than $25,000 in total household savings and investments. Only 24% reported savings of $100,000 or more

Only 24% are very confident they’ll be able to live comfortably in retirement

Only half said they could definitely come up with $2,000 to cover unexpected expenses within the next month.

Another study revealed “The percentage of older middle-class Americans who said their day-to-day financial concern is “paying the monthly bills” has climbed from 52 percent last year to 59 percent today, according to Wells Fargo. Saving for retirement comes in second. Four in 10 say saving and paying the bills is “not possible.””

Wow, can you believe those statistics?  I have a hard time believing those are real numbers.  On average, a man turning 65 this year will live another 20 years, and a woman that age will live another 23 years. How does an individual approaching retirement think they can live on a meager $25,000 – or even $100,000 for that matter?  How long do you think $25,000 in savings will last, especially considering the effects of inflation?

Americans seem to have tworesponses to this dilemma. The first is to make up for the dramatic shortfall by saving more – a lot more than they are now. Almost one-quarter of those surveyed say they’ll need to save at least 30% of their income to achieve a financially secure retirement.

Reality check: this is simply not happening. Despite acknowledging the need to do so, Americans are not saving more. We are actually spending more and saving less. The savings rate is now only a paltry 2.6%, which is one of the lowest rates since 2007.  Additionally a full 25% of Americans are dipping into their 401(k) to pay for everyday bills.

As the stock market – fueled by money printing by the Federal Reserve – hits record highs, and home prices rise, consumer confidence and spending are climbing. It’s called the “wealth effect,” and it makes people do dumb things like spend money they know they should be saving. They figure that because the numbers on their retirement account statements and the sales prices of their neighbors’ homes are up right now, they no longer need to save as much. Which begs the question… did anyone learn any lasting lessons from the last crash? (No, I am not talking about 1929; I am referring to the crash in 2008.)

Many people may have already forgotten much of the pain of the last crash, in which the typical investor lost 49% or more of their investments and their home values fell back to the level of a decade earlier. (I have clients who jokingly tell me their 401(k) transformed into a 201(k), i.e. lost half its value.)

Yet you have to wonder if crouched toward the back of many people’s minds lurks the fear that the current bubbles now building in the stock and real estate markets are setting the stage for another crash. Who wants to set aside their hard-earned dollars in something (401(k), IRA, stocks etc.) that could crash again? The thought goes like this “If we are going to lose money in a stock market crash, we are better off just spending the money now and enjoying it while we can.” 

And that is exactly what is going on in America today. We are spending our money on consumer goods – things and trinkets that lose value or are gone before the credit card bill arrives.  We don’t take any care for the requirements of tomorrow.  (Ask yourself, are you any different?)

The second response is simply planning to postpone retirement to compensate for the lack of retirement funds. Unfortunately, that strategy may not work very well either since more than 47% of current retirees were forced into retirement sooner than they had planned.

A recent headline in the New York Post summarizes it well, “80 is the new 60 when it comes to retirement.” In the same article, Jeff Speight, a financial planner and manager is quoted: “Most clients are about to turn 60 (or right after it), preparing for retirement, and their concern [is]: Are they going to have enough money to live through retirement? Their main problem is, they don’t understand what to do.”

The biggest reason people don’t understand what to do is because they are limited by the traditional financial planning. Financial planners are still preaching the same strategies that we now know are highly risky at best. But because that is all they know, and because that is the prevalent voice, most people are left feeling hopeless and uncertain about their futures.

We cannot solve the current problem using the same information and/or assumptions that got us here. Traditional financial planning is product centered; all you have to do to succeed is to buy the right products (stocks, bonds, etc), at the right time and hold on for the long term. Along the way the traditional financial planners have been so busy selling you the products, they have at best forgotten to give you the knowledge on how to take care of your own planning.

Over the past several years we have seen all the investment lessons we learned in the past fail. We all know we can’t live much longer on 5% rates of return and yet people are scared and hesitant to make crucial decisions. To make it worse, right now 90 million Americans are faced with the most critical investment challenges of their lives.

In this blog, and my website ( ) it is my intent to shed some light on this darkness.  I am trying to break this problem down and analyze it carefully.  If you read with an open mind – be willing to unlearn and relearn some truths about money – then you will have a clear view of choices open to you. Take heart there are good, reasonable, and safe choices out there

If here is a topic I have not covered yet, which you want addressed, contact me and I will do my best to explain it.

In my next column I am going to discuss the fallacy of 3% inflation traditional planners use in projecting your needs in the future and how it affects your outcome. 

Stay tuned.

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