The New Realities About Retirement are Slowly Sinking In

Giving credit where credit is due, the USA Today, which I admittedly have mocked over the years as "McNews," has actually been doing some decent reporting about the economy lately. Case in point was a somewhat lengthy article that appeared on Monday entitled, "Many Have Little Savings as Retirement Looms." The article starts off with a good summation of the financial pressures being placed on older Americans as they approach their retirement years:

For many Americans, the golden years are quickly taking on a tin-like hue.

After a vicious decade of no growth for the stock market, including two 401(k)-eating bear markets and persistently sky-high unemployment, more Americans are finding themselves in their 50s and 60s with practically no money saved for retirement.

"We were in our 30s, blinked, and now we're our parents' age," says Alan Tipps, a corporate jet pilot who typically earns more than $100,000 a year when he's working. But Tipps, 52, has been laid off three times during the past four years, and says that has forced him to burn through what was in his 401(k) just to "keep the lights on" in his home in Portales, N.M.

Investors of all ages have suffered. But for those close to retirement, it's been especially tough, because they're faced with taking distributions from investment portfolios that in some cases are a fraction of their peak value. Forced early retirements and the near extinction of pensions are making things worse, creating a generation of aging investors in which some have little or no plans for how they're going to pay for retirement.

It gets more ominous, given the other changes Americans are facing. Declining property values have drained home equity that many retirees might have counted on. Meanwhile, the number of people reaching retirement age is soaring as the Baby Boom generation ages.

That sounds an awful lot like the things I've been saying around here, actually. But what really struck me is some of the quotes from people interviewed for the story who are belatedly waking up to the new realities. For instance: gee, what happened to those magical 10% annual returns in my 401(k) account I was promised?

The people Redmond encounters most who are lacking sufficient retirement savings weren't necessarily delinquent or negligent. Many had money saved but were wiped out by the sour stock market in the past decade and poor investment strategies, Redmond says.

That's what happened, in part, to Robert and Connie Cabana of Tampa, who are both in their 60s. Robert built up a sizable 401(k) working as a financial executive at Verizon. Connie was a business assistant for a local irrigation supply company. Connie was laid off four years ago; Robert was let go three years ago.

But the serious hit to their retirement, which wiped out half their 401(k) savings, resulted from the stock market and an overexposure to risky stocks, they say. Now, 75% of their 401(k) is gone, and they have "very little" left, Robert says.

Here's another one: oh, you mean I can't just blow all my money like there is no tomorrow and have Social Security there to take care of me when I get old?

Baby Boomers, in contrast with their Depression- and World War II-era parents, who typically were good savers and had company pensions, have looked at savings as a downer, says Chris Olsen, 49, a financial planner with Ameriprise.

Many people now in their 50s and 60s with no savings figured they could lean on Social Security for their retirement, he says. In reality, Olsen says, Social Security payments are far from adequate to fund skyrocketing health care costs. The payments also are losing purchasing power relative to inflation, he says. Social Security, in practice, pays for only about 40% of most retirees' needs, says Paul Jarvis, financial adviser at State Bank & Trust in Fargo, N.D.

"I always made a lot of money. I always spent a lot of money. I've done whatever I wanted to do," says Paul Conlin, 53, a contractor in Liverpool, N.Y., who says he has less than $50,000 saved for retirement. "I live for the moment. When I want to do something, I do it."

But after consulting with a financial planner, Conlin, who is married and has three children, is starting to put money away for retirement. He's saving $6,000 a year in a Roth IRA, "and it's growing," he says. "I've changed my habits."

And finally: what do you mean I have to "lower my expectations?" That's un-American.

Perhaps the most likely option for many is doing an extreme makeover of their finances and slashing costs. Olsen and Jarvis have both seen retirees with little money sell their homes in costly parts of the nation and move to less expensive places. Others forgo many of the things Americans dream of doing during retirement, such as travel.

There's no guarantee that even such extreme measures in retirement will help Americans recover from a lifetime of not saving. Making such sacrifices now creates worries many Americans would rather avoid at this stage in their lives.

Nevertheless, these people have still not completely unmoored themselves from business as usual:

Connie Cabana cautions young people to learn from her predicament. "Young people need to start saving as soon as they start working," she says. "There are roadblocks you don't see when you're young. You think money will always be there," she says. "But with life, you need to make provisions."

Clearly, Ms. Cabana has no idea what it is like to be a young person these days. In order to start saving money for retirement you actually have to be able to earn decent money in the first place. As many of the millions of Occupy protesters could have told her, that is becoming nearly impossible these days.

What this article really demonstrates is how the desperation is building up out there, not just among young adults but all segments of society. My theory is that the U.S. is about one more severe market crash away from massive instability. Propping up the stock market has been the elites' way of trying to pull the wool over enough people's eyes to keep things relatively calm. It may not work for very much longer.