The Looming Social Problem of Retirement

The numbers of people retiring in the USA is soaring. This social problem with many still in debt and social security fails to provide a comfortable retirement. If that was not enough, some still have significant debt. This is a serious social problem and it’s only getting bigger.

Retirement Social Problem

The whole subject of retirement is an emotive subject. With fewer people contributing to Social Security and more claiming this will result in a serious social problem. There will likely be a significant funding problem by the mid-2030s. Without the funding, as things stand this would lead to benefits falling by up to 25%. With no political will to raise taxes, there seems no immediate solution to this social problem.

Those who planned for retirement with a 401K or with a regular savings plan will be better off. Where issues arise are with those retirees carrying significant credit card debt without a regular paycheck. While they were working, it was always possible to get a personal loan. Without the pay-check this is no longer possible.

Worrying Reports

Recent reports from the Transamerica Center for Retirement Studies and the Teachers Insurance and Annuity Association College Retirement Equity Fund (TIAA-CREF) are alarming to say the least. There is a significant number of retired people unable to afford their mortgage. Worse still, data shows the numbers are increasing. Individual mortgage debt continues to rise. There are now over 6 million households where the head of the family is retired. This is double the number than a decade ago.

Equally disturbing is the statistic on credit card debt that suggests 25% of retired people are caught up with no obvious way to fix this social problem. Seemingly the vast majority is relying on Social Security and many already in middle age and beyond say that the System will be their major source of their future income. Those in real trouble are also likely to take benefits at the first opportunity, 62, despite them being 30% lower than they would get at the official 66/67 age, and that is 30% lower again that the figure that will be paid to those that defer taking them until 70.

Recessionary impact

The recession didn’t help planning but neither did the environment that created the recession; steady growth and irresponsible spending as a result.

TIAA-CREF identifies misconceptions that have also contributed to the problems and which should be avoided by people of all ages who are looking to plan their financial future.

Too many investors are using too short a time scale to judge the value of an investment, quarterly up to annually. It should be a minimum of three years and better still five or more. Almost half of the respondents from 1,000 investors admitted to making this mistake. Investment for retirement can readily be made with even 10 year performance as a better guide.

What Is Needed?

One factor that is not helping is the wildly differing ideas that people have about how much they will need to live on in retirement. It is very realistic for anyone currently in decent health to expect to live to be 80, and even 90. That represents plenty of years after retirement. While many retirees can downsize and reduce the household costs they face each month, people will find they may want to spend more during daytime because they are no longer at work.

Those with plenty of time to save for retirement should start to do it immediately. For some it is too late; they do not have the years left to build up their savings. Some will look to continue to work, even part time but there is a limit to how long that is possible, if at all. It makes depressing reading.