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Behavior

Can’t Afford to Retire? Not All Your Fault

Three out of four members of Generation X wish they could turn back the clock and get another shot at planning for retirement. One in three baby boomers say don’t think they’ll ever be able to retire.

“Overwhelmingly, Americans are stressed about their current – and future – financial situation,” the National Association of Personal Financial Advisors said about these new survey results.

Regrets about not planning and saving enough are enmeshed in our thinking about retirement. But it is really all your fault that you’re not getting it done?

The honest answer to that question is “no.” There are big gaps in the U.S. retirement system that make it very difficult for many to carry the responsibility it places on workers’ shoulders.

I predict some of our readers will send a comment into this blog saying, “I worked hard and planned and am comfortable about my retirement. Why can’t you?”

Granted, we should all strive to do as much as possible to prepare for old age, and many people have made enormous sacrifices in preparation for retiring. The hard truth is that some people are much better-positioned than others. Obvious examples include a public employee with a pension waiting for him at the end of his career, or a well-paid biotechnology worker with an employer that contributes 10 percent of every paycheck to her retirement savings account. These workers frequently also have employer-sponsored health insurance, which limits their out-of-pocket spending on medical care. This leaves more money for retirement saving than someone who pays their entire premium and has a $5,000 deductible.

Table of state of retirement preparationSure, we could all do a better job of planning out our careers when we’re first starting out. But my husband, as a Boston public school teacher, started accruing pension credits before he could’ve imagined ever getting old. He recently retired, and his pension, accumulated during 27 years of teaching, is making our life a lot easier.

But pensions are on the wane in the private sector, and more than half of U.S. workers have neither a pension nor a 401(k) in their current job – this makes it pretty hard to save. IRAs are an option available to anyone, but human inertia makes that an imperfect solution to the problem, because people tend to procrastinate and don’t set them up. Further, working couples in which only one spouse has a 401(k) aren’t saving enough for both of them, one analysis found.

The people with jobs that lack retirement plans tend to earn less, too, which limits how much they can save after paying for necessities like housing. The New School for Social Research found that high-income workers save 6.1 percent of their income for retirement, while workers in the bottom half save only 2.8 percent.

Lower-income workers get more help from Social Security, which is a progressive program that replaces more of their earnings than it does for high-paid workers. Even so, low-income workers are less financially prepared.

The newest structural barrier to savings to emerge is student debt. One study found that Millennials who don’t have student loans are saving two times more for retirement than young adults with the loans.

Finally, workers have failed to address changes in the retirement calculation resulting from the fact that the majority of wives today work full time. Having two incomes improves a household’s standard of living, but it also raises the bar on how much they will need from their savings and Social Security benefits, which are replacing less of two earning spouses’ income over time.

Planning for retirement is an enormous responsibility, and we could all do more. But the path to retirement is tougher for some than for others.

Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC. To stay current on our blog, please join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here. This blog is supported by the Center for Retirement Research at Boston College.

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