The Employee Benefit Research Institute released a sobering report on the state of personal retirement. According to EBRI, the lowest 25 percent of income earners among baby boomer households would need to work into their mid 80s before 90 percent of them would have an even 50 percent chance of having retirement income to meet basic expenditures. Higher income earners will do slightly better. But the bottom line is: Work until you're 84 and you may be able to retire. However, this report is an more optimistic than EBRI's 2003 report. It factors in the incentives provided by participation in employer-sponsored auto-enrollment 401(k) plans.
But is working until we die (dying in the harness, so to speak) an inevitable fact of life? Maybe not. While retirement readiness studies are helpful in promoting the importance of planning for the future, they may not paint the whole picture. The EBRI analysis thoroughly covers expenses that will occur in the life of a retiree: food, clothing, housing, transportation and entertainment, as well as out-of-pocket health expenditures. These are based on reported expenses from the Bureau of Labor Statistics Consumer Expenditure Survey,
which reports what percentage of income households spend on various products and
Without having examined the entire survey, however, I would venture to ask: What is considered basic expenses to today's consumer? Consider today's trends compared to decades ago:
- A growing number of seniors are entering retirement with mortgage debt.
- Purchases that were once considered out of reach for many, such as cell phones, computers, the latest appliances and electronics (flat screen TVs, stainless steel refrigerators that do everything but shop, exercise equipment, media rooms in houses), have become more of the norm.
- Families are having children later, thus, as parents approach retirement age, they may be saddled with their childrens' college expenses, or worse yet, college graduated children that are unemployed and living at home.
This is not to say that tough times are all a result of our wants and desires for more, but perhaps it's time to focus less on the income side of the equation and focus more on the expense side. The only expenses I read about in the news are health care expenditures, how they will engulf the household and the economy, and that somebody needs to do something about them. And parents bemoan that their children will have a lower standard of living than they did. But isn't it time that we admitted we have much higher expectations than our parents did? Maybe that is why the goal of retirement seems too difficult to reach.