401(k) Retirement plans falling Short: More Americans Face continuing to work over 65

How unfortunate then is it that more and more Americans are now finding that their savings are falling so short that they are being forced to defer retirement. The wonderful supposed benefits of the 401(k) plans sold into the market during the 1980s, it seems are now projected to come up short in terms of providing adequate funds to help meet an annual retirement income. The Wall Street Journal have reported that the average median household in the U.S., headed by a person aged between 60 and 62 with a 401(k) account, now has less than one-quarter of what is needed in the account to maintain their standard of

Even taking into account Social Security and savings or other pension sources, it appears there are still huge gaps between what retirees need to sustain their outgoings, and what their fund will deliver.

The financial crisis of the last few years has had its impact.  As people have been out of work, 401(k) accounts have been suspended, plus people have eaten into other savings they had accrued for their retirement years. Up until recently most Americans were contributing about 9 – 12% of their income into their 401(k) plan, now most are being advised that they need to be putting in at least 12 – 15%. The real impact is that many Americans are now postponing their retirement, some are even having to make drastic changes, such as moving to cheaper housing, and making lifestyle changes, in order to prepare for retirement.  Of those aged 45 to 59, 40% of them now plan to work longer to help meet their retirement income needs according to a survey by the Center for Retirement Research.

As 401(k) plans became popular in the 1980s, many of the Baby Boomer generation rely heavily upon them.  In fact it is estimated that approximately 60% of households nearing retirement age have 401(k) accounts.

Add to the issue the reality that those retiring today can expect to live much longer due to the marvels of modern healthcare, and it presents quite a scary landscape for visualizing how our most senior population will cope in the future.

The average 401(k) plan held will generate around $149,400, according to the research conducted by the Center for Retirement Research.  This means that an average plan will translate into an annual retirement income of $9,073, which even if combined with Social Security, still falls short.  According to the research only 8% of households coming up to retirement have over $640,000, the amount required to generate a retirement income of $39,465. The research, though enlightening, only includes those with current 401(k) plans, and does not take into account those who are now out of employment and have ceased paying their plan, or those who have

According to the research conducted, the global recession has resulted in about 39% of all Americans being foreclosed upon, unemployed or in arrears with their mortgage.  Many Americans tell the story of unnecessary decadence in an era pre-recession, and they are paying the price for it now.

Carol Dailey’s story is just typical of what has happened in the U.S.  Carol worked as an executive assistant at AOL and had stock options once worth $1.7 million.  When the stock market collapsed so did her plans for retirement.  Now Carol is still working part-time for an Internet security company at age 71, and learning how to live a little more frugally.  “At AOL, we were all buying expensive $60 bottles of wine, and not even thinking about it” she says “now I drink budget box wine”.

Three years ago, at 59, John Mastej had plans of retiring in his early 60’s, he and his wife were both working with John putting 20% of his salary into his 401(k).  The financial collapse cut their savings in half and left John out of work for the last two years.  Fortunately, John has now found another job, but it is on a lesser salary, and he has used up most of his savings keeping up with his mortgage.  Today, he and his wife drive 11-year old automobiles, have canceled their satellite and buy discounted food from their church.