Ralph Waldo Emerson, in the mid-19th century, observed that “Society is always taken by surprise at any new example of common sense.” Perhaps Emerson meant that common sense is rather uncommon. What’s more, if common sense was uncommon in Emerson’s time, it certainly is today.
Little by little common sense has been dulled from popular thought. Over time people came to believe that if the right programs were put in place, somehow, they could live in a world without consequences. Similarly, they came to believe if they voted for the right politicians they could get something for nothing.
These notions are obviously absurd. For instance, it doesn’t take much common sense thinking to conclude that Social Security would eventually go broke. The Social Security System was doomed to fail from the get go.
Back in 1939, John T. Flynn predicted Social Security would be under water by 1970, and insolvent by 1980. Despite being called a crank by the political elites of the day, Flynn was right. In fact, without the Greenspan Commission and the Social Security Reform Act of 1983, Flynn’s prediction would have been off by merely three years.
Of course, it should be no surprise that Social Security is broke. That it lasted as long as it has is the remarkable thing. Still, it seems to be catching most people off guard.
Even though everyone’s known Social Security was going bust, most people haven’t done a thing to prepare for it. Instead they’ve buried their collective heads in the sand like an unassuming ostrich. Maybe they thought if they didn’t worry about it the problem would go away.
But, unfortunately, the retirement savings problem’s piling up like an auto wreck on Interstate 405 through West Los Angeles. Aging workers are headed for a giant smashup. For many, it may be too late for them to do much, if anything, about.
If you can believe it, three out of five families headed by a person age 65 or older have no money in retirement savings accounts. The promise of Social Security misled them in damaging and irreversible ways. Can you imagine?
People have worked their whole lives and have no retirement savings to speak of. But that’s not all. Those that are saving for retirement using a defined contribution plan – like a 401k – are actually building negative wealth.
What we mean is many retirement savers, especially those nearing retirement age, are accumulating debt faster than they are accumulating savings for retirement. A recent study from HelloWallet, calls these people “debt savers.” Here are some of the study’s key findings…
Dependent Upon A Bankrupt System
“These data indicate that a large share of defined contribution plan participants are accumulating debt faster than they are accumulating retirement savings, and that the majority of these participants are over the age of 40 – a time period when participants are expected to be deleveraging and focused on accumulating retirement savings. This growth in debt can come at the expense of being able to afford increased retirement savings deferrals, increases the likelihood that a participant will breach their retirement savings, and raises the cost of retirement.”
Even more disappointing, workers with defined contribution plans between 50 and 65 years old are rapidly running up debt. At the same time, their retirement savings is only about 12 percent of what they’ll need to live on when they stop working…
“The monthly debt obligation of active defined contribution plan households near retirement (between 50 – 65 years old) increased by 69 percent between 1992 and 2010, now adding up to about $.22 of every $1.00 earned…. Yet, the retirement readiness of defined contribution participants remains stubbornly low: the typical worker near retirement only has about 2 years of replacement income saved, or about 15 years short of the median lifespan post-retirement.”
The long and short of it is people have structured their entire lives so that they’re entirely dependent upon a bankrupt Social Security system at the precise moment when they’re most vulnerable…when they’re too old to work. We’re not sure how they let this happen. But they did nonetheless…
If you are one of the many individuals who finds themselves in the unfavorable position of approaching retirement while running up debt faster than savings, it is time to make some dramatic changes. The sooner you can reorganize your life so you can reduce debt and increase savings the better off you will be. Most likely, you know what to do…it’s not rocket science, it’s common sense. You just need a little nudge to get you going in the right direction.
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