More dire news on U.S. retirement readiness

Margaret Collins reports for Business Week (link here) on a new study showing low rates of personal savings in American households:

About 60 percent of U.S. workers said they have less than $25,000 in savings and investments, according to an Employee Benefit Research Institute survey.

…“People get the fact they shouldn’t be optimistic, but instead of saying I’m going to save more today, they just say I’m going to defer my retirement age once I get to 65,” said Jack VanDerhei, EBRI’s research director and a coauthor of the study.

…About half of all U.S. workers don’t have access to a retirement savings plan through their employer and many younger people haven’t been saving long enough to build a large balance, VanDerhei said of the findings.

The EBRI retirement savings study doesn’t include pension plans, but before we get overconfident that pensions will come to the rescue, let’s consider the shrinking number of workers who can look forward to pensions in retirement. Last year, Emily Brandon reported for U.S. News & World that roughly 3 in 10 workers have pension plans.

In addition, many existing pension plans are teetering on the edge. For example:

City of Stockton, California

Stockton, California, is facing the real possibility of bankruptcy, which could result in the end of its pension program for city workers. As reported by Gosia Wozniacka and Haven Daley for the Associated Press (via Yahoo! News, here):

City leaders seeking a way to dig out from under massive debts have taken a step toward making Stockton the nation’s largest city to file for bankruptcy.

…Under the state law, municipalities considering bankruptcy must first seek mediation with creditors, with the goal of settling debts without filing for Chapter 9 protection.

…”If they vote for mediation, it is the first step towards bankruptcy,” former City Manager Dwane Milnes told KCRA-TV. “That means 1,000 people could lose retirement benefits.”

American Airlines

Workers at American Airlines, currently in bankruptcy reorganization, apparently have dodged a bullet fired by their employer, which originally announced that it would terminate its pension plan completely. As reported last week by Chris Isidore for CNN (link here):

American Airlines retreated Wednesday on its proposal to terminate its workers’ pension plans and dump them on a federal agency as part of its bankruptcy reorganization.

The company will freeze the plans instead.

The move, which must be approved by a judge, means employees would not accumulate any additional benefits — and American’s future contributions to the underfunded plans would be reined in.

***

Related posts

New Boomer reality: From “shop ’til you drop” to “work ’til you drop” (2012)

Notable books — February 2012 (suggested books on retirement planning and personal finances)

The humane way to fix Social Security (2011)

The press discovers the coming Boomer retirement crisis (2011)

When Boomers retire (or try to): America’s coming train wreck (2010)

One response

  1. One factor that I think gets overlooked in this “baby boomers aren’t ready to retire” thing: the playing field changed under us. (Okay, technically I’m on the border of Baby Boom/gen X, but stay with me.)

    Ours was the first cohort to face the Gordon Gekkos of the world during our prime climbing-up-the-ladder years, facing leveraged buy-outs and the shift away from defined benefit pensions. The first to face the race for bigger, better houses in more expensive neighborhoods, because the public schools were faltering–and the concurrent strain on family budgets. The first to face a high level of EMPLOYMENT INSTABILITY, too. Just think how many people you know who have faced extended periods of unemployment, underemployment, or earnings failing to keep pace as they progress in their careers. When you’re trying to decide whether groceries, rent or utilities go unpaid this month, it’s not feasible to think of your 401(k).

    For a large portion of the American workforce, the postwar years meant that you could probably have a decent quality of life and retirement if you worked hard, played by the rules, and kept your nose clean. (Not universally, of course, given bigotry, uneven access to education and hiring, etc., but even then, there were signs of improvement and and expansion.) Now, you can have the best education, sterling references, an outstanding work ethic, and skills up the wazoo, and the wrong budget cut performed by some bean counter looking for a quick quarterly uptick can cost you your future. The playing field no longer provides even the illusion of security for people who “follow the rules.” It’s a financial lord of the flies, with too many factors rigged against most of the players. One bad break could forever change your course.

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