“How Much Income Do Retirees Actually Have?” — a provocative, important question and the title of a paper published last month by the Center for Retirement Research at Boston College, whose director is Boston’s management sciences professor Alicia Munnell.
The industry consensus: Americans aren’t saving enough — if anything — for retirement. Some studies find, however, that retirement saving seems to be somewhat on the upswing.
Financial advisors need to keep on top of this issue to help clients plan for what — hopefully — will be their golden years.
“The typical working American has zero, zilch, nothing saved for retirement,” National Institute on Retirement Security executive director Diane Oakley has said.
She was commenting on NIRS research released in September showing that four out of five American workers have less than a year’s income saved in retirement accounts.
The U.S. is tobogganing toward a retirement-funding crisis, according to economist Teresa Ghilarducci, director of the New School’s Retirement Equity Lab.
“I’m shocked that about 20% of people in their 50s making $250,000 a year have nothing but Social Security” for retirement, Ghilarducci told this reporter in a Feb. 8 ThinkAdvisor interview.
Meanwhile, on a positive note, a Bankrate survey out this past August found that 28% of Americans were saving more this year than last. That’s the highest percentage of people who increased their retirement savings since 2011, Bankrate reports.
It was also the fourth year in a row that more Americans put more money away for retirement. Further, about 21% of respondents said they’re comfortable with how their retirement saving was progressing.
In addition, other studies have found that “most households are prepared for retirement,” as Andrew Biggs, a resident scholar at the American Enterprise Institute and former Social Security Administration principal deputy commissioner, wrote in a Forbes article in July.
Biggs cited, for instance, the Urban Institute’s Dynamic Simulation of Income model that projects real median retiree incomes “to rise to $40,880” by 2025 and “to $42,165 by 2035.” In contrast, the median retiree’s income sources and assets in 2015 “support[ed] a total annual income of $37,887.”
How do financial advisors view the crucial and controversial retirement-funding issue?
Harold Evensky, chair of Evensky & Katz/Foldes Financial Wealth Management based in Coral Gables, Florida, says: “I’ve seen research that [shows both sides]. I’m skeptical about studies concluding that in retirement, people will be spending substantially less than [when they were working].
“I think many people are maybe living in a dream world thinking they have enough. I’m extremely concerned,” says Evensky, whose office is in Lubbock, Texas.
Critics of the U.S. Census Bureau’s Current Population Survey (CPS) argue that the poll consistently underestimates retirement income.