Few Americans need any further proof that the financial crisis, market downturn and resulting recession has fundamentally changed the way this nation thinks about its finances. But a recent Wells Fargo (NYSE:WFC) report on retirement last week is worth pointing out because of the sheer pessimism hanging over prospective retirees.
Specifically, the Wells Fargo report states that, on average, Americans have saved a mere 7% of the retirement funds they had planned. That means those planning to retire with $500,000 have just $35,000 in the bank — a startling fact.
Not surprisingly, the report also goes on to report a marked increase in the number of middle-class Americans who are planning to work longer — well into their 80s for many of those surveyed. Specifically:
- 25% of “middle-class Americans” surveyed by WFC plan to work until at least age 80.
- 74% expect to work for some period in their retirement years. While some are working voluntarily to keep busy, more than half of those say they must work out of financial need.
- Of the Americans who will work in retirement, 47% say they will do “similar work” to their pre-retired years, which implies a full-time, skilled job and not casual employment as the greeter at Wal-Mart (NYSE:WMT) for minimum wage.
So what gives? It can’t simply be the flop in 401(k) accounts in the wake of the financial crisis. Consider the fact that the broader stock market is down only about 12% since its 2007 peak. That’s obviously not a good thing, but it can’t account for the severe shortfall that most prospective retirees have seen while planning their golden years.
The housing market can’t really be blamed. While homes do represent one of the largest assets for middle-class families, the majority of Americans don’t see their home as an “investment” per se, but rather a residence. It’s not like the typical U.S. retiree puts his house on the market immediately after he has stopped working, so the fall in real estate assets doesn’t tell the whole story, either.
More realistically, the culprits are one of two things: Folks in the prime of their working life lost their jobs, or folks just didn’t prepare properly.
The 40- and 50-somethings who expected to sock away another decade or two at six-figure salaries but now find themselves in the ranks of the long-term unemployed undoubtedly feel the pain the worst. These folks are at the mercy of an ugly job market and are running out of time.
But if you are lucky enough to be in the latter camp — if it can be called lucky to be struck with a sense of panic about your retirement — then it is time to buckle down and figure things out.
The first step is a how-to-retire calculator that can help you calculate what your current benefits will be from pensions, investments and Social Security — and does the math for you on what you actually will see in retirement and what you want to see.
The next step, and the most difficult, is to have the discipline to fill the gap either through conventional saving, direct investing or “catch-up” allowances for 401(k) plans.
Jeff Reeves is the editor of InvestorPlace.com. Write him at firstname.lastname@example.org, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.