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Why There is No Retirement Crisis

Tom Sightings

Recent articles have brought scary headlines about how people have no savings and Americans are woefully unprepared for retirement. A survey from Go Banking Rates, for example, said that over half of Americans have less than $10,000 in savings, and a survey from the Insured Retirement Institute found that nearly half of baby boomers have no retirement savings at all.

You might find these reports alarming, especially when you consider the steep decline in private pensions. But don't panic just yet. While these numbers do and should cause some concern, they do not necessarily mean we are all headed for poverty in retirement. The reason? Retirement savings is not the same as retirement resources. Most of us have resources above and beyond what we have in our individual retirement account. Consider these so-called crises, and how they are mitigated by common sense.

Crisis 1. Surveys report that half of current retirees have no retirement savings. So how are today's retirees flocking to Florida, flooding the roads in their recreational vehicles and crowding into retirement homes? For one thing, while younger workers are not likely to be covered by pensions, more current retirees receive at least some income from a pension plan. Depending on how long you live, a pension of just $20,000 a year could be worth half a million dollars. So savings is not everything.

[See: How to Save for Retirement on Less Than $40,000 Per Year.]

Crisis 2. Working Americans aren't saving for retirement. This may very well be true. But most people with no savings are young workers who have many years ahead to plan for retirement, and they might be able to save later in their career. People who are closer to retirement are more likely to have at least some money in the bank. Older workers are also more likely to enjoy a pension than their younger counterparts.

Crisis 3. Social Security is going broke. According to the latest Social Security trustee report, the system has resources to pay full benefits until the year 2035. That gives politicians almost 20 years to make some adjustments. But even if nothing changes, Social Security will still be able to pay 77 percent of its obligations. Nobody wants to take a 23 percent pay cut, but that's not the same as going broke. Meanwhile, the average monthly benefit for a retired worker is about $1,350 a month. That's not a lot to live on, but it's a start.

[See: 10 Ways to Increase Your Social Security Payments.]

Crisis 4. Almost two thirds of retirees rely on Social Security for more than half their income. But only a third of retirees rely on Social Security for 90 percent or more of their income. This means most retirees have income coming in from at least one other source, typically from asset income and retirement benefits. And income from a part-time job is becoming an increasingly important source of funds for relatively young retirees. About half of people between ages 65 and 69 now receive at least some income from earnings. So, if you are still able to work, you won't have to depend on Social Security alone, and might even be able to save some of your earnings.

Crisis 5. Today's retirees will not be able to maintain their standard of living. This is a matter of interpretation and depends a lot on the individual retiree. Does a retired couple lower their standard of living when they buy a new house in Arizona for less money and lower taxes than the similar house they owned in California? Does a retiree's standard of living go down if he decides to take a part-time job or turn a hobby into an income-producing activity? You might not even need the same level of income after you pay off your mortgage. The point is, retirees have a great deal of control over their standard of living as they shed responsibilities, shift their priorities and change their lifestyles.

[See: 10 Financial Perks of Getting Older.]

By some measures, the retirement crisis is greatly exaggerated. However, that doesn't mean you should be complacent. It's true that private pensions are not as prevalent, or as generous, as they used to be. And Social Security alone does not provide a lavish lifestyle for anyone. But remember, we do have other resources to help us in retirement, from the support of friends and family to our own desires to change our lifestyles. Still, don't forget to put a little money away for your later years. It's better to be safe than sorry.

Tom Sightings is the author of "You Only Retire Once" and blogs at Sightings at 60.



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