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A retirement reality check

September 07, 2009 | Alliant Credit Union

For many working Americans nearing their golden years, retirement no longer looks so golden. Due to plummeting stock prices, eroding home values and other dire effects of the recession, their nest eggs continue to shrink precisely when they can least afford that to happen. In fact, confidence about retirement security has nosedived during the past two years to record lows, according to a survey by the Employee Benefits Research Institute (EBRI). And "the economic
crisis has left U.S. consumers anxious and less prepared than ever for retirement, yet few are changing course" and "many have not figured out how to react to the crisis," concludes a study by McKinsey & Co. These facts help tell the story:

• The one-year return for the S&P stock index for 2008 was a 38% loss (compared to an average gain of 6.5% for the 15-year period ending December 31, 2008). And the financial assets for all U.S. households (excluding real estate values) fell an average of 18% last year1

• The typical 55-year-old will need to work an additional two years to replace the funds that vanished in 2008 (unless the individual offsets the loss by saving an additional 12% each year until reaching age 65)2

• Only 13% of employed Americans feel "very confident" about having enough money to retire comfortably, down from an all-time high of 27% in 20071

• In April 2009, 16.9% of Americans 65 or older were working or looking for work. Meanwhile 25% of Americans say they plan to postpone retirement1

• Most Americans headed for retirement will settle for a lower standard of living than they had counted on. In January 2009, the average U.S. household had a retirement readiness index of 63, based on an equation used by McKinsey & Co. (which considers Social Security, defined benefits, defined contributions and other financial assets) to measure how well households have prepared for retirement. An index of 100 means the family can maintain its current standard of living. Scores under 80, however, mean the family will face spending constraints on basic needs, such as food, housing and health care3

1 Employee Benefits Research Institute 2 Hewitt Associates 3 McKinsey 2009 retirement survey
Sources: The McKinsey Quarterly, msnbc.com, The Wall Street Journal, npr.org

 


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