Retirement Savings Shortfall Tops $14 Trillion – Where Do You Fit In?

Are you planning to retire? Ever?

If so, according to a recent study by the National Institute on Retirement Security, you might end up relying on government and ultimately, fellow taxpayers to help foot the bill.

The problem: A retirement savings shortfall in the U.S. that may exceed $14 trillion.

The Study and Its Findings

The NIRS study, ominously titled, "The Retirement Savings Crisis: Is It Worse Than We Think?," pointed out that the savings shortfall is so serious that Social Security, along with public and private retirement programs will need to see a substantial boost. Either that, the study concluded, or the pressure on safety net programs like Medicaid will be unprecedented.

The reasons for the savings shortfall are obvious and well-known. First, there is the oft-cited decline in traditional defined-benefit pension programs. Second, savings lost (or never started) due to the recession are partly to blame. Finally, lack of availability or lack of employee participation in 401(k) plans and other types of defined-contribution options have added to the problem.

All this led to the NIRS concluding that the average working household has no retirement savings.

And, by “no retirement savings” the report, which used the Federal Reserve Board's 2010 Survey of Consumer Finances for data, meant that the median retirement savings account balance for all working-age households was only $3,000. For those near retirement, the news isn’t good either. The median savings for that group was about $12,000.

To further fuel the fire the NIRS study said when it looked at households made up of people ages 55 to 64, less than 5 percent had adequate retirement account balances.

Measures of Adequate Retirement Savings

There are a number of ways to set retirement savings goals. Here are two of the more commonly accepted measures.

1. Savings and other assets that provide the ability to generate 75 to 85 percent of working-age income.
2. Savings as a multiple of pre-retirement income. Fidelity Investments, for example, recommends a nest egg equal to 8 times annual working age income.

More is Better

The NIRS report concluded that most people do not know how much they need to save in the first place. For example, while $200,000 in retirement savings sounds like a lot of money, it would actually provide less than half of the minimum amount a couple with $60,000 in annual income would need in retirement, according to the report.

The NIRS estimate of the national retirement shortfall ranged from $6.8 trillion when household net worth is included to $14 trillion based only on retirement account balances.

The bottom line, according to the NIRS, is that most people need to increase retirement savings above current levels.

When in Doubt, Calculate

To understand better just how much you may want to increase retirement savings, you likely will want to perform some calculations based on income, current assets, anticipated Social Security benefits, and other financial factors.

To accomplish this, search for a suitable retirement savings calculator – a number of them exist and can be found on the Internet. One, easy to use, but thorough calculator is available on Kiplinger.com.