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Last week, AIG’s CEO Robert Benmosche told a Bloomberg reporter that in light of the Euro crisis, retirement ages in Europe would have to move to 70 or 80 years old to make pensions and health care affordable for the youth.Though that’s not likely to happen in Europe any time soon (we’re talking about countries like France, which erupted into violent protests over a proposal to raise the age from 60 to 62), Benmosche is not alone in his doomsday predictions.
In the U.S., retirement has also reached a critical point. 70-seven million baby boomers are slated to retire in the next 20 years, with approximately 10,000 reaching retirement age every day, while 401(k) accounts have been drained by the recession, pension systems are strained, and Social Security coffers are near a breaking point.
Below are five worrisome predictions and statistics about the looming retirement crisis in the U.S.:
1. The Unplanned Retirement
Americans have never excelled at planning for retirement, but the economic downturn has caused them to be even less prepared. More than 60 per cent of workers in a recent survey said they’ve lost confidence in their retirement plans since 2007, according to the Transamerica centre for Retirement Studies. The survey also found that over half (54 per cent) of workers in their 60s said they haven’t saved enough to sustain themselves for the rest of their life.
Another recent report from the Employee Benefit Research Institute found similar results. Just 14 per cent of those surveyed were very confident they will have enough money to live comfortably in retirement. Even more shocking? 60 per cent of workers reported that the total value of their household’s savings and investments (not including the value of their home and any official retirement benefit plans) was less than $25,000.
2. What 401(k)?
Though the majority of Americans now depend on a employee-provided 401(k) account for their retirement, according to the Transamerica report, 23 per cent of workers don’t participate in their employer-provided retirement plan. Another report from the financial industry think tank LIMRA, found that nearly half (49 per cent) of Americans aren’t saving for retirement at all.
For those who do contribute to a 401(k) plan, the Transamerica report found that the average contribution level has dropped down to 7 per cent of an employee’s annual salary (the suggested amount is 10 to 12 per cent), and the average balance in 401(k) accounts is just over $60,000, according to the Employee Benefit Research Institute (EBRI). For those who are 10 years away from their planned retirement age, more than a third of them have saved less than $25,000 (that’s $875K away from the EBRI’s suggested $900,000 that a typical person would need to live out his or her years).
RELATED: The High Cost of Growing Old Alone
3. The 80-Year-Old Worker
Though 65 is considered the official retirement age in the U.S. (the year someone born in 1947 or earlier is eligible to receive Social Security benefits), the reality is much different. 80-six per cent of workers in their 60s predict they will work past age 65, according to the Transamerica report. And one quarter of middle class Americans plan to delay retirement until they are at least 80 years old (currently life expectancy in the U.S. is 78), according to a Wells Fargo poll last November. Essentially, many Americans are planning to work until they die.
4. Too Sick to Retire
According to a recent report from Fidelity Investments, a 65-year-old couple this year would need an estimated $240,000 to cover medical costs through retirement (and that’s including traditional Medicare coverage), a 50 per cent increase since Fidelity first did the study in 2002, and up from $230,000 last year.
At the same time, most people have no idea how much they need to save for medical costs in old age. In a Nationwide Financial survey, boomers guessed they would need about $5,600 a year to cover out-of-pocket costs (or about $112,000 in total), less than half of the Fidelity Investments estimate. Many of those interviewed in the survey reported being “terrified” of what health care costs may do to their retirement plans.
5. A Program in Peril
The latest annual trustees’ report for Social Security projected that the program’s trust fund will be exhausted by 2033, three years earlier than last year’s estimate. When the fund runs dry, the government will only be able to pay 75 per cent of the promised benefits to retirees. Meanwhile, Medicare’s trust fund will be exhausted by 2024, according to the report. The main reason for the accelerated timeline is the sluggish economy and high unemployment, causing total earnings in 2011 to be 1.6 per cent less than expected. “Lawmakers should address the financial challenges facing Social Security and Medicare as soon as possible,” the report said.
SEE ALSO: 17 scary charts about America’s coming retirement crisis >
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