Bangkok--18 May--Standard & Poor's
In a recent survey by the American Institute of Certified Public Accountants, 40% of working Americans said they will never be able to afford to retire. They might be right, said an article published today by Standard & Poor's Ratings Services. The article, which is titled "The Time Until Retirement Is Running Out, But The Savings For It Aren't Adding Up," says that most Americans haven't saved anything for retirement, and the few who have usually haven't saved enough. What's more, the 2008 recession and the declines in stock and home prices have devastated the funds they had put away.
As a whole, Americans are still not financially prepared to stop working. Most households have no retirement plan other than Social Security, and the average American family has not saved enough maintain its standard of living in retirement. Moreover, at a time when they should be free of significant financial burdens such as mortgages, many preretirement (age 55 to 64) households still have high levels of debt.
Unsurprisingly, American workers now have far less confidence than they did in 2007 that they'll have sufficient funds for their golden years, according to the Retirement Confidence Survey that the Employee Benefits Research Institute and Matthew Greenwald & Associates conducted in early 2011. Moreover, growing numbers of pre-retirement households are saying they are already tapping into savings to pay for current expenses.
The current system is unsustainable. Social Security can be fixed with relatively minor tweaks, such as increasing the retirement age, raising the tax rate, or reducing inflation indexation. The Medicare problem, however, is more severe and more imminent. There is no easy way to fix the Medicare cost increases without significant tax increases or a major reform of the health care system that cuts costs. Congress shows little probability of doing this; even the modest health care savings in the recently passed health care reform bill seem likely to be dropped. Shifting the costs onto the retiree seems a likely reform but unfortunately runs against the fact that retirees already have too little to retire on now. Society needs to make a choice about the cost and timing of retirement as well as the extent to which the public should be responsible for retiree income and health care. We expect society to continue to avoid making any such choice until a crisis occurs.
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