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Consider this, from a recent report by ConvergEx Group: "Only 58% of us are even saving for retirement in the first place. Of that group, 60% have less than $25,000 put away."
We're having a heated public debate right now on the financial health of Social Security and Medicare. But the problem is so much deeper than government pension systems. Most Americans are woefully undersaved for retirement, with little or no private net worth to speak of.
Last week, I sat down with Joseph Dear, chief investment officer of CalPERS, the nation's largest pension fund, with nearly a quarter trillion dollars under management. I asked him a simple question: Is America ready for retirement? Here's what he had to say. (Transcript follows.)
Morgan Housel: Looking beyond CalPERS and looking beyond public pension funds, the Baby Boomers are starting to retire. It's a big generation. Is the United States ready for retirement?
Joseph Dear: No. A lot of the focus is on defined benefit pension plans and whether we have enough assets to cover our liabilities. What do we do about the 50% of Americans who have no pension plan other than Social Security? What's that unfunded liability? And what about workers in the private sector who have 401(k) plans, but if you look at the average balances, you can see they're nowhere near adequate to provide an income replacement sufficient to really enjoy a comfortable lifestyle in retirement, so no, we're not even there. Sometimes it's hard to have a focused discussion on what the options are. I mean, in some circles, if you suggest higher retirement ages, you get a massive pushback.
If you want to finance 30 years of retirement on a 30-year career, you've got to accumulate a lot of capital to finance that. It may make more sense to lengthen the work life and shorten the retirement life, but that's something all of us, whether we're in a capacity as a participant in a DB [defined benefit] plan or like me, responsible for a lot of assets or individuals have to think about. And I don't think as a nation, as society, or as individuals we've really come to grips with how costly retirement income is in terms of the savings required to get there.