Many Americans have one big goal in life: to be able to retire comfortably, and on their own terms. Unfortunately, this goal appears to be more dream than reality for quite a few baby boomers, Gen-Xers, and millennials.
According to the 2017 Retirement Confidence Survey from the Employee Benefit Research Institute, just 18% of respondents were "very confident" that they would have enough money to last throughout their retirement years. Conversely, more than double that amount (39%) claimed to be "not too confident" or "not confident at all." This survey, and additional data, suggests that retirement may simply be out of reach for many Americans – and there are seven reasons why.
1. You're not saving enough
The first issue is simple: You're absolutely terrible when it comes to saving money. A Gallup poll from 2013 found that only a third of U.S. households keeps a detailed monthly budget -- and without a monthly budget it's practically impossible to understand your cash flow or optimally alter your spending habits to save money.
According to February 2017 data from the St. Louis Federal Reserve, the average personal saving rate in the U.S. was just 5.6%. This means a hair over $1 is being saved for every $20 in earned income. Comparatively, this is less than half of the 12.4% of their income Americans were putting away into savings 50 years ago, and it's considerably lower than most other developed countries.
2. Your safety nets are probably costing you real money
Before the Great Recession, retirees had been spoiled for decades with juicy yields on U.S. Treasuries, bonds, bank CDs, and other nearly guaranteed interest-based assets. The past decade has been a different story. Yields on safer assets have been near record lows, causing retirees and risk-averse investors to earn very little in nominal income. Once inflation in factored in, it's quite possible that retirees have been losing real money and seeing their purchasing power eroded.
Worse yet, there's no quick fix to what's been a three-decade rally in bond prices (bond prices and yields have an inverse relationship, meaning yields on U.S. Treasuries have been falling for about 30 years). Though the Federal Reserve has begun tightening monetary policy, most investors in interest-bearing assets are still losing to inflation, and it's likely to stay this way for many quarters to come.
3. You don't trust the stock market
Another issue is that far too few working Americans trust the stock market. A Bankrate survey released last year found that just a third of millennials have money invested in the stock market. The more than 50% drop in the broad-based S&P 500 between 2007 and 2009 is still fresh in investors' mind, and quite a few people simply don't trust Wall Street.
Yet, the stock market has been shown time and again to be one of the most consistent sources of wealth generation over the long haul, with an historic average return of 7% per year, inclusive of dividend reinvestment. Whether it's fear of stocks or a lack of patience, stock market distrust isn't allowing nest eggs to grow as they should.
4. Social Security is going to fail you
If you haven't saved much for retirement, then leaning on Social Security probably isn't going to work for future generations as it's done in the past. The good news is Social Security will be there for all retirees, but the bad news is your eventual payout may be cut.
The 2016 report from the Social Security Board of Trustees predicts that the trust will have depleted its more than $2.8 trillion in spare cash by the year 2034. To keep the program solvent, the trustees have estimated that up to a 21% cut in benefits may be needed on an across-the-board basis just to keep Social Security solvent through 2090. Based on 2017 dollars, a 21% cut in benefits would put the average retired worker right on the cusp of the federal poverty level in terms of annual income received from the program.
5. Medical care inflation isn't going to slow
Your expenditures aren't getting any cheaper -- especially medical care. Over the past 35 years, the medical care inflation rate has outpaced the cost-of-living adjustment that was passed along to Social Security recipients in 33 of those years.
For instance, drug developers in the U.S. have a laundry list of inherent advantages that allow them exceptional pricing power with branded therapies. In recent years, specialty medicines that target cancer, diabetes, and other specialized ailments, have been rising by a double-digit percentage. Tack on the rising cost of hi-tech medical equipment and surgical procedures, and there's little reason to believe that medical expenses won't continue to eat up a larger portion of senior citizens' income during retirement.
6. You're carrying a record amount of credit card debt
Chances are that you're also going to be entering retirement with debt, or at least hinder your ability to save money during your working years because of a growing amount of credit card debt or even mortgage debt.
Data the Federal Reserve released last week shows that the aggregate amount of credit card debt Americans hold has topped $1 trillion for the first time in more than eight years. Ironically, this record amount of credit card debt comes at a time when the average credit card interest rate is hitting a new all-time high, implying that consumers are poised to pay a lot in interest on what they owe.
Furthermore, an Urban Institute data project finds that the number of adults aged 65 and up who are toting around debt grew from 30% in 1998 to 44% in 2012, including nearly a quarter who still have mortgage debt.
7. Your kids are going to financially drain you
Finally, there's the real possibility that your children could play a key role in your inability to retire.
According to data from real estate company Trulia, an estimated 40% of millennials are now living at home with their parents rather than living on their own. While millennials are making the decision to stay at home to save up their own money, they're potentially compromising their parents, who are being forced to shell out extra money to take care of their adult children.
Let's not also forget about the rising costs of college, which have handily outpaced wage growth for decades. As college tuition and fees become pricier, parents may wind up stepping in to help cover those expenses at the cost of their own retirement.
It's no secret that formulating a budget, sticking with the stock market over the long haul, and using your credit wisely could alleviate nearly all of these concerns. The question is at what point, if ever, will the American public wake up and realize it?