The new retirement
A new poll from Gallup says that Americans expect to depend more on Social Security when they retire—and less on 401(k)s, IRAs, and part-time work. I don’t believe it for a minute.
These findings are part of a national survey polling nonretirees age 18 and older. Compared with 2007, workers in 2010 are saying they are going to rely more on Social Security, and rely less on most everything else needed to finance retirement—401(k)s, IRAs, work, company pensions, and home equity.
What is this poll really telling us? My guess is that American opinion is heavily biased by recent experience. Many of the elements of a retirement program declined as a consequence of the great mortgage meltdown and the ensuing financial crisis. There has been a partial recovery. But the anxiety lives on.
In reality, the evolution of retirement in America remains unaltered by the 2008–09 crisis. We already know the contours of what is sometimes called “the new retirement.” First, social programs, such as Social Security and Medicare, will be less generous for future retirees because of their fiscal imbalances. This is well known. But by no means should you jump to the conclusion, often also cited in polls of younger Americans, that Social Security will be nonexistent for future generations. Even without reform, Social Security benefits will continue to pay out at 70%–75% of their current level for the next century.
Second, work will play a greater role in the financing of retirement. This trend is already underway. A majority of households in their late 60s have earnings from work—and this is only set to rise. We know that baby boomers, while better paid and better educated than their parents’ generation, also have saved less as a demographic cohort. So a longer period of work—a.k.a. a shorter period of retirement—is inevitable.
And third, despite the 08–09 market decline—and the poll results—we know that tax-deferred accounts like IRAs and 401(k)s will only grow in importance as an essential resource for future retirees. The median tax-deferred holding among households near retirement was around $100,000 when the government last did its major survey in 2007. That median value fell, of course, but now has likely recovered. It’s expected that this median will more than double in the coming decade. Indeed, at some point in the future, experts anticipate that tax-deferred accounts will generate more aggregate retirement resources than Social Security.
So ignore the polls. The contours of the new retirement are clearer by the day, despite Americans’ (completely understandable) reaction to the recent mortgage and market decline.
Note: The link to Gallup.com will open a new browser window. Except where noted, Vanguard accepts no responsibility for content on third-party websites.
social insurance like social justice and social democracy are socialism
Retirees for the most part are unable to manage defined contribution assets. When they say they will rely more on Social Security, it is an indication that Social Security will be the primary, if not the only, source of retirement income for more than half the population. What is needed are more defined benefit plans rather than 401k s and IRAs.
I don’t believe it either.
The statistical analysis of data of “a national survey polling nonretirees age 18 and older” is completely generic and almost irrelevant.
Today, people are hanging on to what they hope or believe they will recieve as a future benefit, aka Social Security, but many others don’t have jobs. Those that are employed, generally do not invest or can not save enough for thier futures.
I am underwhelmed that you could even publish this article for your blog.
Vanguard wants you to believe that you will be depending more on your own assets because they are in the business of taking your money and putting those assets in various retirement and other portfolios.
People will have to depend more on such products as social security, because no matter how much people can save, the performance of Vanguard products has been abysmal (albeit investment costs as low). So the income you’d like to get from your investments will not really be there.
You clearly state here that the majority (more than 50%) of households work in their late 60′s.
5 days before you wrote this, John Ameriks wrote, in this very same blog, in the article right before yours: “less than half of the population is working at ages 62–64, and less than one-third is employed between ages 65 and 69″
You guys should get together and agree on your stats. It’s unreasonable to offer advice where the same figure is above or below half, depending on what you are advising.
Social engineering has no history of success and usually drives people to despair. What is needed is a consistent program of self reliance and independence. One such program would be to save and invest at least five percent of your earnings over the a life span. I saved 10% over my 45 year work life and now I am totally independent of the government. Yes I sacrificed and didn’t keep up with the “jones” but they can not keep up with me now. However, since Social Security was legally required tax, I am getting those checks as well. I don’t need them, but since I earned them, I give them to the wife to fritter. I must say SS was the worst investment I had because the return was very bad over 45 years. I could have done better with 30 year treasury’s. Only a fool would rely on a Government or any other benefactor in my opinion.
I just had the minimum 40 quarters, so SS is very small and I waited until I was 65. I worked for California City Govt. for 40 years. That income is about 1 1/2 times greater than SS would have been. But not even close 6 figures. So we can live Ok. But we are going to rely on our home appreciation ( when sold) and our Vanguard IRA’s to keep us above water in the inflationary years ahead.
getting job, getting healthcare, paying bills comes before investments these days
The Ameriks and Utkus stats quoted are referencing two different groups, ie household vs individuals. As i read it, the poll is all about perception; if the same questions were asked say in 2002 to 2006, the results would show far less pessimism about portfolio balances. The odd thing is, if we vanguard investors really put the ” stay the course” mantra and asset allocation advice on the website into play, we would have already been aware that such downturns can and will occur, and would have been better prepared mentally to deal with it, as well as better prepared financially to ride it out. Much happens that we as investors cant control, but then why worry about what you cant control?
I believe a large percentage of baby boomers will continue to work for the rest of their lives. The difference will be how much they will work , this depends on how many additional resources they have. So , will I work 10 , 20 , 30, or 40 hrs a week untill I drop ?
To make the best of a self directed retirement plan, we need prosperity. If we keep on our present path of big government programs, prosperity will become in minimal. The more taxes the government collects is less money for prosperity. I think history has demonstrated how prosperity works and today’s economic trend does not speak well that we have learned from history. Not too many years ago, economists considered 8% growth and 3% inflation as realistic planing projection . Judging from the present government policies, I don’t see how those trends will be considered realistic. If people are planing on Social Security and Medicare as their retirement and health care plan, I don’t see where we will have the prosperity of the past because the government will the benefactor and will siphon the money from prosperity.
The future is twitchy and the trend is scary to those who plan their lives.
save as much as you can
I’m struck by the dishonesty of most investment advice (not Vanguard’s) and the basic ignorance of the typical person investing for his/her retirement. I’m afraid that this combination is no accident. Our large corporations save a great deal of money by paying into 401K plans rather than guaranteeing their employees a decent income in retirement. Very much like closing the mental hospitals and putting the patients on the streets to save state governments money. Equally sad.
Thank goodness Bush failed in privatizing Social Security. It’s the only thing most people have in their old age. Self-reliant investors should be thankful that they have not been overwhelmed by medical bills rather than feeling smug. This is a poor way to run a country. I suppose that makes me a Socialist but I hardly feel like one.
I think that investing is a very simple exercise. When the 401K came along I quickly realized the benefit of saving. Within a couple of years I was putting in the maximum 15%. Years later I am now putting in 19% of my salary. I consistantly lived below my means, bought a house I could afford and pay cash for a lot of things instead of living off of credit cards. As a result I am focused on living a healthy lifestyle so that I can enjoy my life in retirement. I think most people can do this if they put their mind to it. Social Security was never intended to be the primary income for people in retirement. I was supposed to be the safety net for those who could not make enough to build retirement savings Every working person should start out planning for retirement. 20 somethings saving just 4% of their salary would end up at 65 with more than enough to live until 90. I think a small amount of delayed gratification is in order.
Work after retirement? I’m 67 and lost my job last Feb. No one is hiring seniors unless you are willing to work for one or two dollars above minimum wage with little or no benefits.
I think that a retiree (like me at age 67) should look at any and every source of income as a big deal and a positive thing. Social Security is your money, you put it in, don’t look at it as welfare, you have paid for it. Medicare is the same way, you have paid for it every time you got a paycheck… use it, it can be pretty good medical coverage if you choose the right provider. Sure save till it hurts for retirement, my wife and I did. But adding about $3800 per month between the two of us IS a big deal. Add to that an emergency fund and an interest only income from your savings of about $4500 or so per month and the future is not so frightening. The key is to save the max you can, keep working till they kick you out the door and wait till 65 or later to claim your money back from SS. Retirement can then be, like most of life, an adventure to look forward to … because you have earned it … and paid for it!
These comments are amazing. People are in the fix they are in because they are too spoiled to save. Without parents, I started working (labor) at 16 (no HS), joined Marine Corps as soon as they allowed me, served in Vietnam, got a GED, and studied one course at a time for 19 years to finally achieve a Masters. We lived every day saving for the future and after divorce, I raised my kids alone for ten years (one has a Ph.D.) and then seized every opportunity to go anywhere and do anything to get the next step, all the while saving, saving, saving. Now, at 60, I’m retired and enjoying the savings of a lifetime, watching others who squandered their life on extravagance and living beyond their needs. The government is systematically ruining our citizens by ruining their motivation to work and strive, by giving to everyone, for every reason, without regard to the “spoiled child” syndrome. My work was 10 years military service and 30 years law enforcement service and every day I feel good about how I served my country and protected our citizens. When are we going to spank them when they don’t do what they should? Saving for one’s future is an individual’s responsibility, not something that we should give to the lazy and take away from those who were motivated to succeed. Quit blaming your shortcomings on everyone and everything else and take responsibility for your own life. Start squeezing your pennies until they scream and then save even more. Darn. I’m out of…
LIve below your means. Save first. Invest. Let the power of compound interest work for you not against you. It is your retirement. Make it work for you. Do not depend upon someone else. They have their own problems.