Americans have a total of $24 trillion set aside in retirement assets, according to the most recent numbers released by the Investment Company Institute. The problem is that it's still not enough.
Part of the challenge is funding longer life spans. In 1900, the average life span was 47. But a 65-year-old today can expect to live nearly two more decades. "It's the dream of history," says the psychologist and gerontologist Ken Dychtwald, whose research firm Age Wave dissects the massive "maturing market" of aging boomers. "For thousands of years we searched for fountains of youth."
Now we've found it — or at least a minor tributary of it. We've also found the bad news, which starts with money.
First, a little history. In 1967 a third of those 65 or older lived below the poverty line; in 2012 only about 9 percent did. This historic reversal, due largely to Social Security, Medicare and the widespread reliance on defined-benefit pensions, might not last much longer. "A greater percentage of the elderly will be poor or near poor than in the last 40 years," warns retirement expert Teresa Ghilarducci of New York's New School for Social Research.
Why? Simply put, the boomers are not saving nearly enough to offset the disappearance of pensions. A Fidelity Investments report says that 48 percent of boomers are not on track to be able to afford basic expenses in retirement. That figure is echoed by the Employee Benefit Research Institute (EBRI), which declared in 2010 that 47 percent of the oldest boomers were at risk.
EBRI released a report in March 2016 showing that retirement confidence has increased since the Great Recession: In 2013, 13 percent of workers said they were very confident about having enough money for a comfortable retirement, and by 2016, that percentage had increased to 21 percent. Still, 19 percent say they are not at all confident.
Maybe this shouldn't surprise anyone: A generation that swore never to get old turns out to be not stellar at retirement planning. Combine that with the rocky economy and the individualistic way most of us are now forced to save, and the results might be financially catastrophic.
The story has been oft told. What we think of today as the way almost everyone plans for retirement began as a small shift in the tax code in the late 1970s, designed to help a few high-earning corporate executives by letting them put aside a percentage of their salary on a tax-deferred basis. But soon the Reagan administration decided that companies could offer the benefit to all employees — and the 401(k) was born.
The 401(k) was meant to supplement, not replace, traditional pensions. Instead, companies began dropping their pension programs. Today, they've all but disappeared from the private sector. Only 10 percent of boomer-age workers can expect income from defined-benefit programs. Less than two decades ago, more than half retired with pension income.
What killed the pension system? It was hope, but hope mixed with desperation and a bit of greed. The rise of the self-funded retirement dovetailed with the great bull market of the 20th century, when the Standard & Poor's 500 index increased by more than 1,000 percent in nearly 20 years. That growth allowed many to believe that stock market gains were inevitable, and that their own investing prowess was responsible for them.