Strained Budgets Hinder Ability to Save For Retirement

Sunday, 13 Oct 2013 05:38 PM

By Michelle Smith

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Americans are steadily warned of an impending retirement crisis, but many are ill-situated to do anything about it as they are already struggling to keep their heads above water.

People need to save more for retirement than they were originally told, Alicia Munnell, director of the Center for Retirement Research at Boston College, tells CNBC. Realistically, people need to stash away 10 to 15 percent of their annual income, she says.

That's a large order for a population slowly clawing its way back from the devastation of the Great Recession. Many people are dealing with stagnant or lower wages and household budgets remain strained. To save anything is a challenge in some households, much less piling up additional cash for the distant future.

Editor’s Note: 75% of Seniors Make This $152,000 Social Security Mistake (See Easy Fix)

“You can imagine someone who's losing their house is not going to be worried about retirement 10 years down the road. They're worried about a roof over their head over the next year,” Henning Bohn, professor of economics at the University of California, Santa Barbara tells Bankrate.com.

“It stands to reason that people who are unemployed will have a hard time saving. Some people will be tempted to even cash out their retirement funds—their 401(k)s and 403(b)s—in order to survive during unemployment,” he adds.

People in lower income brackets are understandably in the most precarious situations, as they tend to have less saved and less to spare. But many high-wage workers are also projected to face challenges. Munnell said her analysis of government data from 2010 found that the median 401(k) and IRA account balance for 55- to 64-year-olds was $120,000, a level that financial experts warn is drastically inadequate.

And Bankrate.com says last year the Federal Reserve reported that 40 percent of American households near retirement age have no retirement account at all.

Americans need to kick their saving habits into high gear, but for the most part that isn't happening. Only 18 percent of the respondents in an August Bankrate.com survey reported saving more for retirement than a year ago. Most were still saving at the same rate.

What's troubling is that Americans between 50 and 64 are those most likely to be saving less, says Greg McBride, senior financial analyst for Bankrate.com.

“That's troubling in a few respects: They're the closest to retirement age, and they have the availability of (tax-advantaged) catch-up contributions that can allow them to really pile the money away,” he says.

“People have so many demands on their resources today that when they're looking at the different priorities; something that's well off in the future they can kind of put off in the back of their mind,” Wade Pfau, professor of retirement income at The American College tells Bankrate.com.

Editor’s Note: 75% of Seniors Make This $152,000 Social Security Mistake (See Easy Fix)

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