Three pieces of news that say a lot about the retirement crisis Americans are facing and what we can do about it — if we want to.
The first is a recent survey of 1,000 American workers that shows they have saved more or less for retirement. And the picture is not as bleak as it is destructive.
Less than half of respondents have saved $ 100,000: Not even enough to support an average income of about $ 40,000 a year in retirement. One in six say they have saved nothing. One third are not currently making any contributions. And it’s not just young people who have at least decades to cover the ground.
Respondents still working, with an average age of 60, have an average savings of about $ 112,000.
A quarter of respondents, and 30% of millennials, said they planned to rely on “cryptocurrencies” to fund some of their golden years.
Yes, good luck with that. Meanwhile, the cryptocurrency bubble continues to deflate.
The survey was conducted on behalf of the Anytime Estimate website for housing and real estate financing.
Probably the saddest part of the survey was that about 80% of people expected to see their standard of living fall into retirement, while 10% feared they would not be able to retire at all.
For those who are young, the only answers are to save more, save earlier and invest better — which usually means investing in long-term assets such as stocks and keeping costs low.
Those who are older do not have this luxury. In most cases they will need to rely on Social Security which provides most of their retirement income.
This brings me to the second element: Even more information on how the underlying Social Security investments are going.
In a word: Wrong. As usual.
The Social Security dollars that are violently extracted from your salary have so far been poured into bonds that pay interest between 1.625% and 3%.
This is at a time when consumer price inflation is hovering around 9%.
Last year your FICA dollars were channeled into bonds that pay only 1.4% interest rate and in 2020 less than 1%. So much of that money has already gone to what an old friend of mine called a “money paradise.”
No wonder Social Security is in a deeper financial crisis.
The fund, almost unique among all the pension programs in the world, is invested entirely in US government bonds with low-paying bonds.
If you think this sounds like a stupid investment policy, you are right. But there is no desire in Washington to change that. They like cheap loans.
They prefer to reduce your benefits, this is what they seek to do.
Social security is a “fixed benefit” and not a “fixed contribution” retirement plan, so your benefits are not directly linked to the return on investment from the underlying assets. Instead, your benefits are defined by law – but are supposed to be financed by the underlying assets. Low return on investment means that these assets are depleted. That’s why people talk about cutting Social Security benefits.
Paradise should not improve performance.
Compare and contrast government investment funds managed by other, less competent national governments around the world. The Australian Future Fund has just announced a change of leadership: Investment chief Sue Blake is resigning for personal reasons.
The Australian Fund is investing money on behalf of the Australian people, just as Social Security was supposed to invest on behalf of the American people. But there is a big difference. Australia invests money wisely, in stocks, real estate, infrastructure, timber, government bonds, corporate bonds and so on.
The Australia Futures Fund was established in 2006. Since then, its average return has been 8.4% per annum, well above target and well enough to increase the public’s initial investment by 260%.
Out of curiosity I looked at the corresponding numbers for the social security fund. Since 2006 it has gained an average return of 3.8% per year, enough to increase an investment by only 80%.
Australians have literally earned more than three times as much money as us.
That is why we have a pension crisis. Lucky thing everyone has stored quite privately, right?