Saving for retirement is scary. So little is knowable, and so much is uncontrollable and uncertain. A new survey from Wells Fargo reinforces just how anxious middle-class Americans are over how much financial security they will have once they retire, if they can ever afford to.
Wells Fargo found that “22 percent of the middle class say they would rather ‘die early’ than not have enough money to live comfortably in retirement.”
This is the depressing state of retirement in America: survey questions that pose an early death as a viable alternative to comfortable retirement.
Americans at least seem to have gotten the message that’s been drilled into them in the 30 years since the 401(k) was created: Personal savings will be your primary source of income when you retire. Only 30 percent of Americans think Social Security will be their primary source of retirement income, according to the Wells Fargo survey.
But the survey also reveals that Americans are deeply aware their personal retirement savings are inadequate, especially as they get older. Forty-eight percent of respondents in their 50s said they won’t have enough to live on if they stop working. Would-be retirees with inadequate savings are left with the choice of working longer or accepting the much lower standard of living that comes with relying only on the government safety net to survive.
The survey defines "middle class" as households with an annual income of $50,000 to $100,000 for 30-to-75-year-olds, and annual household income of $25,000 to $99,000 for 25-to-29-year-olds. The current U.S. median household income is $51,900.
The survey’s rather generous definition of middle class – which skews higher than one common measure of 50 percent above and below median income – makes data points like these even more troubling:
- 19 percent percent of middle-class Americans have zero retirement savings
Based on the numbers, most retirees will be unable to match their current standard of living. The standard assumption is that your retirement income should be 70 to 80 percent of your working income. The median savings across all age groups was a paltry $20,000.
Even a group that has saved a relatively large amount, people in their 40s with a 401(k), haven’t saved anywhere near enough. Their median savings are $50,000. That’s good for a little more than a single year of retirement, based on the current median income. Even bleaker: 40-to-49-year-olds without a 401(k) have median savings of just $10,000.
Why aren't people saving more? The survey's responses offer a hint. Wells Fargo asked what spending “sacrifices” people would make in order to save more. A little more than half said they’d cut back on discretionary and impulse purchases like spa visits, eating out, or jewelry. Yet most of Americans' spending isn’t on such variable, discretionary things. Housing, healthcare, food, and transportation make up about 65 percent of Americans' spending. On top of that, incomes have fallen over the past decade.
In other words, Americans' inability to save for retirement is all about high fixed costs and stagnant wages, not indulgence and a lack of willpower.
Wells Fargo, of course, would like people to think that they can will themselves to save more, and save it with Wells Fargo. From this self-interested perspective, surveys like this are sales pitches. (The first three words of the Wells Fargo report are a link to the company’s retirement services website.) They are meant to jolt and perhaps scare people into doing what they know they should already be doing: saving a lot more.
But this strategy is only effective if people have the means to save. A few Americans have enough individual savings to maintain their standard of living in retirement; most don’t now and likely won’t ever.
The problem, Wells Fargo's Kim Wimbish said, is that “non-retirees worry about their ability to earn more in their lifetime, and they are skeptical the stock market is the place for them to grow their savings.” Those worries are unfortunately well-founded.