The Growing Retirement Gap*

Published on July 3, 2013

As reported recently in an article by US News, Americans are more unprepared for retirement then we previously thought. In addition, a report released by the National Institute on Retirement Security found that the retirement gap in this country is at $14 trillion!    So what does this mean for people who are getting ready to retire?   According to the study done by the NIRS “. . . more households need to increase their retirement contributions . . . the magnitude of the retirement savings gap is such that most people will have to work longer if they are able to stay employed, or experience a significant decline in their standard of living when they retire.”  The information used for the research came from the 2010 Federal Reserve Data; however, Nari Rhee, author of the report, says that while the financial markets have made huge gains since 2010 the state of Americans’ retirement hasn’t changed much.  The study generated four estimates of the gap:

1. $14 trillion measured by retirement account balances
2. $11.6 trillion measured by total retirement assets when including defined-benefit pensions
3. $11.1 trillion measured by total financial assets that include holdings outside of retirement accounts
4. $6.8 trillion using the broad net-worth measure, which includes homes and other non-financial assets

So what does the NIRS suggest to fix this huge deficit?  The report concludes that Social Security needs to be beefed up, not cut as has been debated about recently.  The report says that if Social Security is not increased, “. . . get ready for an enormous surge in demand for Medicaid and other government safety-net programs.” The study also found that for households with retirement accounts and those without, the median retirement account balance was only $12,000 for people nearing retirement.  This is far below what many experts say is needed to retire on.  If Americans do not begin to save for retirement many people will find that once they retire, they will have to live well below the standard of living that they are accustomed to or they will have to put off retirement so they can save more money.

What to do next?

With such a huge retirement gap there is no more time to waste when it comes to saving for post-employment years.  Social Security can no longer be guaranteed so it is more important than ever to make sure that you will have the funds available to retire in the manner that you want.  This means setting up retirement accounts, not just putting your money into your bank account.  And for many people, it could mean setting up a self-directed retirement plan to be more creative and more aggressive about retirement savings.

At Next Generation Trust Services we are a neutral third-party administrator of self-directed retirement plans. With these types of retirement plans you decide how you want to invest the money in your retirement account, usually based on investments you already know and understand. You can open a self-directed IRA at any time so it’s not too late to start controlling your retirement savings.
Funding your retirement is not something anyone can afford to put off thinking about just a few years before you expect to retire; it is something that needs to be planned years in advance. Contact us to find out how you can open a self-directed retirement plan or check our online resources for new accounts.

* A retirement gap is the difference between how much money you really need for retirement and how much money you have saved.