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Retirement Saving--- We’re Still Behind the Curve

Imagine a vast army of 66 million people, all flapping their arms wildly, running toward a cliff.

That's the image of retiring Americans that I took away from a recent Congressional Research Service report. When it comes to retirement, most Americans are to financial planning as Thelma and Louise were to travel planning. The image is in sharp contrast to the papers' drab title, "Retirement Savings and Household Wealth in 1998: Analysis of Census Bureau Data" by researcher Patrick J. Purcell.

Why did this particular paper grab me?

It can't be the originality of the topic.

I've been reading research on the subject for decades. The story has always been the same. We don't save enough money. When we do save enough money, most of us don't earn a high enough return. As a result, most people retire with inadequate savings. Their standard of living drops. Then it continues to decline.

Having spent most of their lives with "more month at the end of the money" they are dead broke long before they die.

Which brings us to the 66 million people running toward a cliff. According to this study, which is based on a much larger interview sample than the Survey of Consumer Finances conducted every three years by the Federal Reserve, 61 percent of all workers between 24 and 64 haven't got a retirement savings account.

No IRA.

No 401(k).

No Keogh plan.

No Roth IRA.

No 403(b).

Nothing.

Just a deep belief in the Tooth Fairy.

Things don't get a lot happier among those who do have retirement savings accounts. According to the study, 42.5 million workers have some kind of retirement savings account. The average account has a value of $34,700 and the median (half are smaller, half are larger) amount put aside is a whopping $14,000.

Nor do things improve if you examine those of pre-retirement age, 55 to 64. The same survey found that 53 percent had no retirement account and the median balance was less than $25,000. The average value of the same accounts--- higher due to the weight of some very large accounts--- was $57,331. "For a 65-year-old retiring in May, 2001, this amount would be sufficient to purchase a level, single-life annuity that would pay the retiree $450 per month, based on the federal Thrift Savings Plan's current annuity interest rate of 5.0 percent," the study concludes.

That's not a lot of money.

Is there any light at the end of this tunnel?

Yes, but it's a glass half empty, half full. The number of people participating in 401(k) type plans is growing very rapidly. From about 7.5 million people with assets of less than $92 million in 1984, defined contribution plans had 30.8 million participants in 1996 with a cool $1 trillion in assets.

So 30.8 million people have gotten the basic idea. They are taking advantage of the best tax savings deal currently available. Unfortunately, we've still got the 66 million who haven't got a clue.

Another sign of hope is the broader net worth picture--- how we look when you add in taxable savings, home equity, and other assets. Here you see the wall most Americans have to climb--- starting off with nothing putting the future together, year by year. The survey found that the median household wealth among 25 to 34 year old workers with savings plans was $48,294 while the median level of debt was $59,000. (Don't be shocked. Historically, most families in their twenties and thirties have had a negative net worth.)

Some 40 years later, when the workers are 55 to 64, median household wealth has risen to $123,000 while debt has declined to $32,200.

That's a big change. It will probably get better as savings plans are expanded and improved. You don't have to think about this very much to know that we've got a long way to go.

What if you've read this far and don't see yourself in any of these figures?

Then you're a saver. Give yourself a pat on the back.

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About scottb

Scott Burns has covered the changing world of personal finance and investments for nearly 40 years. Today, he ranks as one of the five most widely read personal finance writers in the country. Scott began his career as a newspaper columnist at the Boston Herald in 1977 where he was also the financial editor. Nationally syndicated in 1981 and now distributed by Universal Press, the column appears in newspapers from Boston to Seattle. In 1985 he joined the staff of the Dallas Morning News where his column quickly became one of the most widely read features in the paper. He left the Dallas Morning News in 2006 to become one of the founders of AssetBuilder and its Chief Investment Strategist. Burns is a graduate of Massachusetts Institute of Technology (1962). He has written four books, including "The Coming Generational Storm" (MIT Press, 2004) coauthored with economist Laurence J. Kotlikoff. His fourth book, also coauthored with Kotlikoff, will be published this spring by Simon & Schuster. "Spend Til' the End" uses consumption smoothing to demonstrate the errors of conventional financial planning. His business experience includes working as a staffer for a major consulting company and service as a director and audit chairman of a NASDAQ listed manufacturing company. He and his wife divide their time between Dallas and Santa Fe, New Mexico.
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