Struggling to Save

As I wrote in the lead paragraph of a forthcoming trade-magazine article, “it’s still hard to fathom the enormity of last year’s seismic shift on Wall Street that triggered serious cracks in nest eggs whose fragile shells were still hardening across America’s rural, suburban and urban landscapes.”

Many working Americans dreaded the arrival of quarterly investment statements in their mailboxes last year, and I’m no exception. We collectively sustained some major damage to our savings plans. After all, this has been described as the worst financial crisis since the Great Depression.

The nation’s 78 million Baby Boomers are just a knee-replacement away from retirement, but most of their anguish won’t be physical. My sense is that after writing about retirement-planning efforts in the workplace for more than 20 years, a sizeable segment of society will be in for a major rude awakening. No doubt, they will dream about a comfortable retirement. The trick will be saving enough money from Social Security, corporate pensions and personal savings such as 401(k) plans and individual retirement accounts (a formula called the “three-legged stool” in the industry I cover).

A perfect storm threatens to gut portfolios for several generations of working Americans as the economic climate worsens, coupled with a frighteningly volatile stock market performance, negative national savings rate, shift in financial investment risk onto consumers and inability of politicians to show the necessary political will to reform Social Security. I can’t help but notice
that employers not only have been “freezing” or abandoning the traditional pensions that emerged after World War II en masse, they’ve also been ending retiree medical benefits dating back to an arcane regulatory change in the early 1990s that forced them to expense those obligations on their balance sheets.

In the meantime, participation in 401(k) plans and IRAs, as well as the way average people invest in those vehicles, continues to fall short of expectations. Fewer than 10% of investors are thought to save the maximum amount allowed in a 401(k) plan and their decisions are often uninformed or arbitrary, if not downright careless.

For example, about one-quarter of workers recently polled who say they’re 10 years away from retirement invested more than 90% of their 401(k) in stocks (the amount was for roughly half the survey respondents). And since the fourth quarter of 2007, pensions have reportedly fallen by $4 trillion worldwide. Another disturbing statistic I recently ran across suggests that 70% of people have assets totaling less than $10,000. That scares me more than being forced to ride a rollercoaster against my will.

Most experts on the retirement-planning topic suggest that workers will need to salt away more than $1 million in order to live comfortably after they quite working, which these days could last as long as 30 years considering advances in medical science that have extended the average lifespan. About 25% of those dollars will be spent on health care bills, which have been rising faster than the rate of inflation for many years.

The strange thing is that despite living longer, our quality of life has eroded. A national obesity epidemic has taken its toll, causing a host of so-called co-morbidity factors that include elevated levels of cholesterol, triglycerides and glucose that lead to heart disease, stroke, diabetes and hypertension, not to mention asthma and other chronic diseases. I recently watched the documentary “Supersize Me” and was astounded by the outcome.

 In an earlier blog entry, I surmised that the time has come to view basic health care as a human right – not a privilege. The free-market and entrepreneurial spirit inside me cannot arrive at the same conclusion about retirement, which I do think is a privilege and not a right. But on the other side of the coin, I think putting too much weight in tax credits or privatizing Social Security isn’t the answer, which probably lies somewhere square down the middle of a conservative and liberal mindset. Clear heads must prevail in both policymaking and the general populace, and honoring either extreme isn’t in our best interest.

Left to their own devices, people in a culture of conspicuous consumption will simply live beyond their means and be a burden to the rest of us – sort of like a distant cousin who has overstayed his welcome. Let’s be careful not to penalize people who don’t have a clue about how to hold onto a buck and leverage their savings. Even seemingly sophisticated investors stumble. Look how many poor rich souls were taken in by Bernie Madoff’s alleged $50 billion Ponzi scheme.

The time has come for us to adopt a more efficient national savings system so that people aren’t struggling to make ends meet and have the security of knowing they won’t become impoverished or destitute and a burden to loved ones or friends in their old age. That will require a more meaningful partnership approach between government and its citizenry.

How do we achieve this lofty goal? I’ll leave that up to the experts. I’m just a working journalist who’s charged with knowing a little bit about a lot of things. But as my knowledge about the intricacies of this complex issue expands, it would be nice to actually be a part of the story instead of covering it as a detached observer. Maybe by then I’ll have a much different job title.