Of Retirement Nest Eggs - And The Inadequacy Of Americans' Savings

Columnist Jonathan Clements in Sunday's Denver Post WSJ Section put forth a blunt question:

"If you lost 25% of your money invested in a stock market correction, would you be ok with it?"

He then put it another way: "If you had $200,000 in stock investments and lost $50,000 of it, would you be able to handle it?"

The questions are spot-on given many money and finance gurus expect a correction soon, maybe as early as January or February next year when the Fed will likely start raising interest rates - signaling the end of the cheap money era. Clements suggests many could survive the loss using the buy and hold strategy, but many ordinary workers who had piled it up in their 401ks might have to work ten more years.

But this is the problem with investing in the stock market. It is laden with volatility and your money rises and falls almost daily with the share value. Another reason many of us call it 'phantom money' because it isn't real until you actually cash out, redeem the shares. Another problem, of course, is that many clients get burned by investment advisers and even pension funds when these assume too high a return, often 8 percent or more per annum, when that simply isn't realistic on examining the global situation. The shareholder then has been led into the proverbial fool's paradise.

According to an article in MONEY magazine ('You Call This Retirement?', Feb-March, p. 49), citing stats from the Investment Income Institute,  there is a total savings accumulated for all Americans of $21.7 TRILLION. This sounds like a staggering amount of savings until one realizes that perhaps half of it is for those in the upper ten percent of earners and the rest for 90 percent.

And while 1 in 5 Boomers is already out of the work force, many who've been forced to retire because no one will hire them, the rest scramble to save enough to live off of for 25 or 30 more years.  As MONEY notes: "It's the best and worst of times for Boomers at retirement" - meaning the potential for up to 20 or more years of living (once one hits 65) and doing the things you never could before as well as "fulfilling your bliss" (Joseph Campbell's term)  in whatever ways suit your fancy.

The problem is that without sufficient money to live off,  it portends a time of genuine misery. It is true that for a tiny elite group of lucky Boomers who have a million or more stashed away the warning could be more like: "Don't be the richest corpse in the cemetery" - the warning for too many is "Don't end up a corpse too soon from eating cat food and fried kibbles".

Based on the earlier stats, Fidelity Investments claims that a person 55 or older who has been active in his or her 401k for the past 10 years, is likely to have only about $269,000. This sounds like a grand sum until you realize that a typical couple will need at least $220,000 to cover medical expenses that Medicare doesn't pay for. Most Americans don't have anywhere near that much saved anyway, and a recent WSJ article (Sept. 12) put the median savings at just over $50,000 for the worker aged 60 -64. This is pathetic and portends a life of "cat food" and poverty unless some other means of income is supplied. (Or, one has the advantage of a VA medical benefit which pays for all the things, e.g. dental, glasses etc., that Medicare doesn't)

Oh, and don't look for lotto winnings, the chance of winning even one ordinary lotto (not the Powerball)  is less than two asteroids striking Earth at the same time.

But MONEY has some encouraging words for those who won't be able - for whatever reason - to hit the magic number for retirement nest egg savings (generally computed as at least 80% of your mean salary for the last twenty years,  so if your salary was averaging $50k/ yr. you'd need to have $800,000 saved.):

"Retirement itself is a very modern concept, an artifact of postwar prosperity and longer life spans. For most of history, those lucky enough to reach an advanced age kept working until they were physically unable - so rural life and extended families provided the safety net."

Then the piece puts a downer meme into the mix, noting that the longevity revolution and industrial revolution put an end to that.

But left unsaid is the real problem or issue, which no finance column or magazine has ever had the balls to mention, at least those that I've read: That is,  the genuine problem is we have a population surplus, too many babies being produced, which is creating too many workers chasing too few jobs.  Just tally up the "population replacement" numbers by month since 2000  (avg. about 150,000) and look at the numbers of current unemployed and under-employed. A coincidence they're nearly the same? Hell no! But again, the Neoliberal media doesn't want people to see that, only to blame THEM if they can't secure a decent job to keep them off "entitlements" until they are 70 or so.

Stop the population surplus and you solve the problem Marc Freedman complained about at the end of the article, "too many people being warehoused who no longer have an economic role".

Something to think about!