Lack of Savings Impacts Social Security

January 12, 2004 ( - A lack of savings among baby boomers now heading into retirement has left one TIAA-CREF research fellow asking, "Do We Have a Retirement Crisis in America?"

As it is, 64% of those currently on Social Security rely on it for more than half of their total, even though the system only supplies 40% of the average pre-retirement wage. Even worse, nearly a third of the elderly rely on Social Security for 90% or more of their income, with 20% receiving all their income from the system, according to Douglas Fore’s research published in the November edition of the TIAA-CREF Institute Quarterly.

Social Security paid an average monthly benefit of $902.60 to retired workers in 2002.

Yet, it looks as though it will get worse, before it gets any better, Fore’s research says. As evidence of this doomsday forecast, Fore points to private savings rates that have declined at a rather dramatic rate over the past two decades. Since 1980 personal savings as a percentage of disposable income has dropped from slightly more than 10% to less than 4% in 2002. Citing data from a Survey of Consumer Finances, the median net worth of families nearing retirement – heads of household between the ages of 55 and 65 – comes in at $181,500, including the value of the family home. That figures drops to $176,300 for families head by a member between the ages of 65 and 74.

Fore adds that many employees simply do not have the financial knowledge to handle their own retirement investments. For example, many employees cash out their plans when they switch employers, losing years of savings in the process. Retirement savings surveys shore up Fore’s arguments. According to the 2002 Retirement Confidence Survey, 44% of retired persons 60 and older have saved $75,000 or less, while 11% has saved nothing.

This already strained system though could reach its breaking point though baby boomers look at retirement without the proper savings behind them. This in turn will have a trickle down effect on the American taxpayer, Fore says in his report.

“The crisis is exacerbated because of strains on the federal budget, including reduced tax revenues resulting from tax cuts and a weak economy, and greater spending on defense and other government programs,” the Institute Quarterly pens. “As a result…federal spending is expected to rise well above its traditional share of the total economy. Americans will be faced with significantly higher taxes or significantly reduced services or some combination of the two.”