Are Americans on Track to go Broke?
Americans Aren’t Breaking the Retirement Bank…
But They Can Get on Track with a Self-Directed IRA
A 2018 Retirement Savings survey by GOBankingRates found that American adults on average are not doing well when it comes to saving for retirement. While this isn’t new, the percentage of Americans with nothing ($0) saved has dropped, and the percentage of those who have at least $300,000 in their retirement plans has increased over the past three years.
The survey targeted three age groups: Millennials, Generation X and Baby Boomers, with about 1,000 respondents per group. They were asked to estimate how much they have saved for retirement and were given assorted ranges to select from (less than $10,000 to $300,000 or more).
The alarming result is that 42 percent of those surveyed have less than $10,000 saved—that’s not even enough to cover one year’s worth of living expenses, which according to the Bureaus of Labor Statistics, is on average, $46,000 a year for adults 65 and up. Included in this group, 14 percent have nothing saved for retirement. Luckily, as noted above, this percentage is dropping.
Summary statistics: The percentage of people who could retire broke, with less than $10,000 saved, has shrunk in recent years as per the GOBankingRates Retirement Savings survey:
2016 – 56 percent
2017 – 55 percent
2018 – 42 percent
Here’s a silver lining: the survey revealed the majority of Americans have more saved for retirement, broken out as follows:
- Nearly 7 percent saved $10,000 to $49,999
- Nearly 13 percent have $50,000 to $99,999
- More than 12 percent have $100,000 to $199,999
- Nearly 10 percent have $200,000 to $299,999
- About 16 percent have $300,000 or more in retirement savings
Among the reasons cited for not saving, about 40 percent said they don’t make enough money to save, and around 25 percent reported they are struggling to pay their bills.
Statistic: 57 percent of Millennials have $10,000 or less saved for retirement
Millennials had the highest percentage of respondents with nothing saved (18 percent). Given they are still in the early stages of their careers, it’s not that surprising. Another 39 percent of Millennials have less than $10,000 saved—but at least they have a longer time horizon to catch up. However, the total percentage among this group that reported nothing, or less than $10,000 saved, dropped significantly from last year and the percentage of this generation with $300,000 or more saved has grown slightly—all encouraging signs for these younger workers.
Baby Boomers, who are now facing retirement, are also facing some challenges in terms of saving for retirement.
Statistic: Although 23 percent of Baby Boomers (55 and over) have saved $300,000 or more, about one-third have less than $10,000 saved
Don’t be a statistic! Start saving for retirement with a self-directed IRA
Whether you’re a younger worker, a mid-career Generation Xer or a Baby Boomer looking to retire now or very soon, there’s time to catch up on your retirement savings. With a self-directed IRA, you could build a more diverse retirement portfolio with alternative assets such as real estate (investment property), commodities (agricultural, energy, livestock), precious metals, private placements, and many more.
You can open and self-direct a Traditional or Roth IRA, a SEP IRA if you are self-employed, or a Solo 401(k). If you are comfortable making your own investment decisions or already know and understand certain non-traditional investments, you can include them in a self-directed IRA. It doesn’t take much to start; you can even roll over or transfer an existing retirement account into a new self-directed plan.
Retirement Challenges for Younger Baby Boomers
Older baby boomers began reaching full retirement age in 2010 and may have positioned themselves for a more comfortable retirement than younger boomers. Younger baby boomers (individuals currently aged 53 to 62) have begun to face serious challenges related to their retirement finances, for several reasons:
They are less likely to have a traditional pension than older Americans, in large part due to the dramatic decline in defined benefit pensions.
According to the Center for Retirement Research at Boston College, 88 percent of all private-sector employees had a pension in 1975 compared to only 33 percent today. Even for those with pensions, many plans were frozen after 2006 when the Pension Protection Act went into effect.
Family-related financial issues.
For people in their 50s and early 60s who are helping cover their children’s college tuition costs, those expenses are higher than ever. According to the College Board, tuition, fees, and room and board for one year at a private, nonprofit four-year institution is now $46,950; it was $29,530 in 1997 (adjusted for inflation). For state schools, these expenses have risen in the past 20 years from $11,860 to $20,770 per year.
The “boomerang” generation of college grads came back to live at home as they try to establish careers and help to pay off student debt. Many are being carried on their parents’ health insurance plans through age 26, which curtails their parents’ ability to save.
An aging baby boomer generation suggests an increase in the number of aging parents who may need help meeting the costs of long-term care, for a longer time period.
The lingering effects of the economic downturn and Great Recession, including lower stock returns than in prior generations.
Less security around Social Security.
Boomer couples born before Jan. 2, 1954 can still file a restricted application for Social Security benefits, meaning that spouses can claim spousal Social Security benefits only, while allowing their own benefits to grow 8 percent annually until they hit age 70. Those born after that date cannot do so.
The age to get full benefits is creeping up. Americans born from 1960 on will have to wait until age 67 for full benefits.
The Social Security trust fund is projected to run out of funds in 2035, when the youngest boomers turn 70 years old. And in other bad news, Medicare’s Hospital Insurance Trust fund is projected to be exhausted by 2029, when they turn 65.
Adding salt to the retirement finance wound is the national savings crisis.
We have written many times in the past about the lack of savings by Americans in general and it becomes critical for those nearing retirement age.
Boost your prospects with a self-directed retirement plan
While self-directing your retirement plan won’t bring back a healthier Social Security trust fund or secure Medicare’s future, it is a way to develop a more diversified retirement portfolio that can help you rise to the challenges faced by those who are trying to save for their post-employment years. These tax-advantaged plans may include many types of nontraditional investments that are not allowed in traditional plans, based on what the investor already knows and understands. These non-publicly traded alternative assets can be a great way to build retirement wealth without relying on the stocks, bonds, and mutual funds offered by many banks, brokerage houses, and typical workplace employee benefit plans.
Are you already a savvy real estate investor who invests in rental properties? Would you like to arrange a loan through your IRA, with terms you and the borrower set? How about including investments in startup companies in your plan? It’s all possible through self-direction within a retirement plan – Traditional or Roth IRA, SEP IRA, SIMPLE IRA, or solo(k) plan), Coverdell Education Savings Account, or a health savings account (HSA) – at Next Generation Trust Company. If you’re someone who is comfortable doing the necessary research and making your own investment decisions, self-direction could be the strategy you never knew you needed.
Want to know more? You can read up on self-direction as a retirement wealth-building strategy on our website or visit our YouTube channel for informative videos that will help get you started. You can always call us with your questions and immediately speak to a live person for assistance at 1-888-857-8058, or email us at Info@NextGenerationTrust.com.