HelloWallet: Americans' Retirement Savings Is 15 Years Short

Tuesday, 05 Nov 2013 07:22 AM

By Michelle Smith

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Americans with 401(k)s and defined contribution plans devote more than 11 percent of their annual income to retirement, when including Social Security taxes. But it isn't enough, says a new report from HelloWallet.

Retirement savings has become one of the largest household expenses, but savings levels remain "stubbornly low."

A primary reason is that too many Americans are "debt savers." They accumulate debt faster than savings, the report explains. Between 1992 and 2010, debt obligations, or the percentage of household income going to pay off debt, for American workers rose 9 percent.

Editor’s Note:
5 Phases of a ‘Retirement Heist’ Exposed (See Video)

But according to HelloWallet, the problem was most acute among individuals aged 50-69. Their monthly debt obligations increased 69 percent during that time, consuming 22 cents of every dollar they earn.

The typical worker approaching retirement age has only about two years of income stashed away. That's about 15 years short of what is needed, since a typical retirement spans about 17 years, HelloWallet explains.

Some may assume this behavior results from economic turmoil, but HelloWallet suggests a large percentage of Americans pile up debt faster than they save "regardless of the underlying health of the US economy."

Americans' mounting debt loads have a negative impact on their retirement outlook. Keeping abreast of current expenses leaves less to ramp up savings. And for those closest to retirement age, more debt means a higher cost of living after they stop working.

While individuals with higher incomes have a slightly higher propensity to be debt savers, the tendency is prevalent among all income groups. The most notable differences may be types of debt and the motives, HelloWallet notes.

Higher-income households have better access to mortgages, so they are more inclined to buy properties and use debt to cover the purchases. Lower-income individuals may use debt to pay bills and supplement their income.

HelloWallet CEO Matt Fellowes told CNBC, the debt trend among 50 to 65 year olds is "remarkable."

"You'd expect most people at that point to be deleveraging: paying off their mortgage, paying back their student loans or have already paid off their student loans, and not having difficulty paying off credit card debt. But, in fact, those are the households that are most likely to be building up debt faster than retirement savings," he said.

Financial advisors warn that unless Americans change their habits, many will face a financial crisis during their retirement years.

"Take a look not only at your savings rate for retirement but at your net worth statement, your balance sheet," said Sheryl Garrett, CEO of Garrett Investment Advisors and member of the CNBC Digital Financial Advisor Council.

It's important to constantly ask: "How much do you owe versus how much you own?" and to ensure the answer is always heading you in the right direction, she told CNBC.

Editor’s Note: 5 Phases of a ‘Retirement Heist’ Exposed (See Video)

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