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Wednesday, August 27, 2014

Retirement saving crisis?

Recent news carried a story about the lack of retirement savings in the US. The USA Today article referred to a study by BankRate.Com (more on that study can be found here and here).

The opening line is quite alarming "A third of people (36%) in the U.S. have nothing saved for retirement, a new survey shows".  At first glance that looks bad but 23.3% of the US population is under 18 so you wouldn't expect them to have retirement savings.

Therefore I dug a little deeper. The original study was not all people, it was adults only. OK, that makes more sense but still left me wondering how bad things really were.

Since 23.3% of the US is under 18, that means 77.7% of the 316 million residents in the US are adults. That's roughly 243 million. Thirty-six percent of that group is about 88 million.

Therefore, there are about 88 million adults with no retirement savings at all*.

But how bad is that? Some adults don't work. Some are the non-working spouse in a single-income household and 14 million are on disability. There are 45 million (14.1% of the total population, ) 65 and older, most of whom no longer work. There are probably other non-working groups.

Some of these non-working groups may have saved for retirement before they left the work force (of the 65+, only 14% or about 6.25 million have no retirement savings**) but once they stop working, no one should expect them to save for retirement.

Unfortunately, all these numbers don't help much in determining the size of the retirement savings crisis. If 88 million out of 243 million adults have no retirement savings, then 155 million adults do have retirement savings. Compared to a US Labor Force of 156 million people, this doesn't look that bad but we can't assume that these are the same people.

We need to subtract from 155 million all the adults with retirement savings who are not in the Labor Force. Good luck finding that number. For the 65+ nearly 39 million of them have retirement savings but, again, we can't assume that all of them have left the Labor Force.

For now, the best I can say is that 10's of millions of the 155 million adults with retirement savings are not in the labor force. Is that 20 million? 40 million? 60 million? I don't know so let's play with a range.

If it's 20 million, then 135 million adults in the Labor Force (86.5%) have retirement savings.  On the other hand, it it's 60 million, then only 90 million adults in the Labor Force (57.6%) have retirement savings.

To flip it to the original headline, I'm estimating that somewhere between 14.5% and 42.4% of the Labor Force has no retirement savings. One end of that range is bad news, but not quite "crises". The other end is a disaster.

Too bad we don't know which end we're really on. Sometimes statistics leaves more questions than answers.

*The original study had a 3.5% margin of error the 36% claim. I'm intentionally ignoring the margin of error and using the 36% point estimate in an effort to keep this simpler. The numbers would change by several million people but the overall logic would remain the same and it's the logic that I'm trying to demonstrate.

**I can't find it on BankRate's site but another article about the survey claims at 14% of those 65 and older have no retirement savings.

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