Oddly enough only 32% of Americans are planning to take action by increasing their contributions next year. Which is quite alarming as 69% report having 1000$ or less, in savings. That doesn’t sound good.
We also have to consider that many of the baby boomers are reaching retirement and make up a strong portion of the survey population. To make things worse, we have to account that about half of the work force, will not have any private pension coverage. That’s the part of the work force that are self-employed, freelancers, and those in small businesses.
That means a good number of Americans are going into retirement very poorly prepared, looking to fall back on social programs like social security and medicare as their only options. This article by the Washington Post states that 10,000 baby boomers are retiring every day- and over the course of a year that number becomes just shy of 4 million. That means a lot of demand is being placed on these programs, but the money to fund it has to come from somewhere..
How reliable is social security?
Social Security is system that has no pre-funding, meaning, the payments taken from the work force are immediately used to pay benefits to social security recipients. This creates a bit of a problem as there are approximately 31 million more baby boomers that are nearing retirement, an addition to the 48 million today .
The Social Security Administration even admitted to potentially losing 33% of employees to retirement, including 48% in supervisor positions. This no doubt will have deep impact and repercussions on the workload and distribution through the company.
It will also be shifting the ratios of workers to retirees to much less favorable figures. In 10 years the elderly will require $1.8 trillion dollars in federal spending – nearly half of the federal budget. When we once had 15 workers per retiree, we are now down to 3. Since families are having less children there is going to be an even greater shortage to the pool of people in the work force.
This poses even more of a problem because we are also living longer then ever, requiring benefits for a longer period of time.
The chilling news is that Social Security is currently experiencing a negative cash flow and was predicted to be in a deficit of $75 billion in 2013, with that figure presumed to rise steeply after 2018. Social Security was at a surplus not too long ago, but they sold their surplus to the US Government in exchange for bonds, which are currently worth $2.8 trillion and counting.
The Treasury can then issue bonds to investors in the private market to balance the deficit of benefit payments.
However the core problem remains- There is a diminishing number of people in the work force that are left to pick up a steep tab for a surging numbers of retirees, while taking on extra pressure due to the number of unemployed Americans. Of course, non of this factors in any tax contributions that would go towards other government programs like medicare, reducing national debt, or national defence. To allow all programs equal opportunity would mean to hike taxes up to a minimum of 33% up 50%.
It almost seems like a game of jenga, pulling out support beams to balance them on the top of the tower. The heavier the top gets, the more likely it’s going to collapse.
So before it’s too late, check out your saving strategy and see how your retirement savings stack up. If you aren’t taking advantage of private pension plans such as 401K or Roth IRA, then its best to start looking at other investment options to build up your retirement funds.