Perhaps the core problem that must be overcome is this: saving isn’t much fun.
The familiar television advertisement, where the person says his retirement goal is “a kazillion dollars,” is all too true. Most people have no idea how much they need for retirement, and frequently, they couldn’t say how much they are likely to have given their current savings trajectory.
Ever since the de facto retirement plan switched from “defined benefit,” where the amount of the pension payout is fixed, to “defined contribution,” where only the amount of the investment is certain, people have been under-contributing to their retirement. We had our foreclosure crisis. The next one may be the crisis of insolvent seniors.
In 2017, the average middle-aged American household had $250,000 in savings. While a quarter of a million dollars is a lot of money, it may not be adequate to support a long retirement. A quarter of a million dollars does not sound like a crisis. It sounds reasonable enough, but only because of how the number is calculated and because of what factors go into the math behind that number. Averaging creates distortions. If you have one person whose has set aside millions for retirement, then that sum alone can make things appear favorable. For example, if three people have no savings and one person has $1.6 million, the average savings is $400,000. Averaging would, in that scenario, convey the notion that workers were making progress.
One-third of workers with a job (not self-employed) have no savings at all. Close to 20 percent of 60-year olds have a net worth of zero or less than zero. According to the Consumer Federation of America - a well-respected source - approximately one in five Americans say that planning to win the lottery is a viable retirement strategy. Other sources say the percentage is even higher.
I am very worried. The scope of the problem could become one of our country's greatest points of distress in the next fifteen years. A caveat - I'm far more worried about climate change and the arrival of robots - but the prospect of having tens of millions of impoverished retirees strikes me as a ticking time bomb. Unlike the other two, we can grasp the meaning of the problem right now, because while the number of penniless seniors is not as high as it will be, plenty of examples exist. We do not really know what climate change will bring. The replacement of so many jobs could be disastrous or it might be the technological force that leads to new positions in entirely unknown fields of commerce. We don't know. We do know that there will be great costs to providing relief for seniors without savings.