The Dangerous State Of ‘Retirement’ In America

In last Monday’s Juice, we took exception with an editorial published by the National Association of Plan Advisors (NAPA) that flat out says we don’t have a retirement crisis in America. It was a simplistic take that used a simplistic definition of retirement while ignoring hard, glaring realities:

From Gen Z through the senior citizen population, large numbers of Americans are struggling to save (enough or at all) for retirement. And many of those in retirement aren’t faring all that well …

To really understand and appreciate the retirement crisis you have to stop thinking about retirement for a second. Because, under current circumstances in the United States, the people struggling — the folks in some type of retirement crisis — don’t have the luxury of thinking about retirement. Either planning for it (effectively or at all) or living it out comfortably. 

This is the problem when you obsess over one thing, such as retirement. You ignore the contributing factors that you can’t ignore if you want an ounce of credibility within the debate. 

When there’s a housing crisis and an overall cost of living crisis, there is going to be a retirement crisis, at least for a large enough segment of the population for it to matter.

Before the ink could dry on the installment of The Juice, a publication we absolutely love — Morningstar — published an op/ed with the headline, There’s No Evidence of a Retirement Crisis.

We won’t get into the details because, frankly, they miss the point almost as badly as the NAPA piece. That said, these articles aren’t necessarily reflective of either organization’s official points of view (if they even have one). They’re simply one person’s unfortunate opinion. 

To even suggest we don’t have a retirement crisis — for many people headed towards and others in retirement — is not only preposterous, it’s dangerous. 

In a January Juice, we wrote about the problem with 401(k) and IRA accounts:

• Bank of America (BAC) estimates that 401(k) plan hardship withdrawals were up 27% in Q3/2023 versus Q1 of the same year, with the average amount being just above $5,000 per withdrawal. 
• Fidelity says the number of people taking a loan from their 401(k) is up and 1.7% of the people in the 401(k) plans they administer have taken hardship withdrawals. 

Here again, you can tie these hardship withdrawals and loans directly to the cost of living crisis, which obviously impacts retirement saving and contributes to the retirement crisis. 

The latest data we have shows things are not improving. 

• According to Vanguard, which follows about five million accounts, 3.6% of workers participating in 401(k) plans took hardship withdrawals in 2023, up 28.6% from 2022 and around 80% from before the pandemic. 
• 40% of people who took these withdrawals did so to avoid foreclosure. 

PBS recently collected some accounts of people who took withdrawals:

“My name is Hannah Empie. I am currently unemployed, and I live in Pennsylvania. The second that the meeting was over with HR and my former boss, I went to withdraw my entire 403(b) account. I was able to make that withdrawal and had the money in three days. And it was a lifesaver for me because it would take three months for my unemployment to get approved.”

“I’m Amy Strivers. I live in Colorado. In 36 months, I had to, let’s see, a nice word they like to use is pivot. I had to pivot my plans and go from retiring early modestly, just trying to be well for the rest of my life to I have to spend everything for the new housing price. The price of these homes, a 20 percent deposit, six figures cash you got to come up with. So that was a lot of savings I had in my 401K. Then I cashed it out in order to get into the house.”

Hardly losers. 

Both people talk about the struggle to satisfy the cost of doing life today. They had to deal with the guilt and shame over sacrificing their retirements to deal with job loss, cover healthcare costs and buy a home. These people didn’t go to Vegas to blow their 401(k). They’re making choices in an environment that’s as difficult as it has been in a long time. 

Then, there are people at and beyond retirement age. 

From a CNN article that also discussed people struggling to pay for everything today, there’s this:

The number of US workers in the labor market over the age of 75 is expected to nearly double over the next decade according to the Bureau of Labor Statistics, creating a looming retirement crisis.

In a nutshell, many people in retirement can’t get by on Social Security alone or in tandem with meager savings. And others are struggling to save amid a high cost of living. 

But this has been a problem since even before this current bout of high inflation took hold. From another CNN piece:

• The median 401(k) balance for people 65+ is around $70,000. Same for folks between 55 and 64. It only goes down from there. 

We don’t have to show you the overall retirement savings numbers. They’re nothing short of pathetic. 

Somehow, these retirement crisis deniers look at the data and act as if it’s somehow flawed. Or seem to be okay with people existing at a substandard baseline prior to and in retirement. 

It’s sad. 

Sad that we no longer seem able to come together on anything as a nation. There’s not enough pride to unify. Instead, there’s skepticism, taking sides and rationalization. Lots of yeah buts and victim blaming. 

How can we merge to solve a problem if we can’t even agree that one exists in the first place? 

The Bottom Line: At The Juice, we do what we can. We expose B.S. when we see it. And we try to do it from various perspectives. 

So, for the rest of the week, we’ll shift our focus to ETFs and dividends, two keys in retirement investing. While we realize that lots of people impacted by the retirement crisis don’t have spare cash to save, things can change. And, if you’re reading this newsletter, there’s a good chance you are or want to be an investor. 

So, stick with The Juice for personal finance and investing content that can help you deal with the many issues we’re facing as a country today. Forward today’s installment to a friend and tell them to use this link to sign up for free.

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