Majority of Americans Knowledgeable about Retirement, but it Might ...

Go Banking Rates readers who answered a series of survey questions in participation with our Financial Literacy Movement have proven that they?ve got some good financial awareness in regards to planning and saving for retirement.

But when it comes to affording a comfortable lifestyle in one?s golden years, money may, in fact, trump brains ? according to a glut of opinions from personal finance experts, the concept of retirement may be dead and gone as an institution.

Employment rates took a huge hit after the U.S. economic downturn in 2008, and the labor industry hasn?t quite been the same since, with a national unemployment rate still at a high 7.7 percent as of April 2012. Will it ever recover? Maybe? so ? but what about retirement? If and when the job market picks up, those re-entering the workforce may never be able to leave. Some economic forecasting warns that many people may not be able to retire from work in upcoming decades because of negative changes to the country?s financial landscape, and a change in savings habits among Americans.

Poverty Levels Up

The dream of spending one?s senior years in leisurely retirement bliss, vacationing in a summer home, hitting the links and spending time with family, is more and more becoming less of a reality. According to a report published this week by U.S. News and World Report, an increasing number of older Americans are spending their retirement years below poverty levels.

A study performed by the Employee Benefit Research Institute (EBRI) found that the number of retirement-age Americans living in poverty has grown at a rapid pace since 2005. The poverty rates for people aged 65-74 rose from 7.9 percent seven years ago, to 9.4 percent in 2009, according to data from the University of Michigan.

U.S. News said that for people in their septuagenarian years and beyond, the numbers are more alarming ? poverty rates over the same time period went from 7.6 percent to 10.7 percent. The oldest retirees, the story said, are the most likely to live in poverty; 6 percent aged 85 and older entered into poverty in 2009, up from 4.6?percent in 2005, at an age when people are no longer capable of working any longer, and money is needed most.

Sharing the Blame

Part of the reason Americans from the Baby Boomer generation and older are finding themselves living in poverty is because they failed at adequately saving for retirement. In fact, 49 percent of Americans, according to a LIMRA study, don?t have enough saved in their retirement plan to quit working.

Forbes columnist Peter Cohan relayed this week further findings from the EBRI, which stated that only 17 percent of people surveyed in the study had saved up more than $250,000 for retirement in 2011. Sixty percent of people reported they had less than $50,000 conserved for their post-working years. Cohan said that the typical rule of thumb is to save 60 percent of one?s pre-retirement income to live comfortably after retirement, but that Americans aren?t reaching that goal.

It?s not entirely our fault, though. Cohan listed some other potential reasons why the financial institution of retirement is breaking down:

• Reduced workplace pensions. Businesses are not compensating their employees enough. Cohan, citing a 2010 Towers Watson survey, said that the amount of defined benefits (not to be confused with defined contributions like 401(k)s) through Fortune 100 companies dropped 50 percentage points over a 12-year period, from 67 to 17 percent.
• Falling income levels. Americans can?t afford to save because they?re being paid less. A 2011 Census report, said Cohan, revealed that the typical U.S. family grew poorer between 2000 to 2010; median household income, he said, dropped 2.3 percent to $49,445 in 2010. It?s one of the primary reasons people are unable to save.
• Higher expenses, like childcare. The U.S. Census Bureau reported that during its decade-long findings, childcare center fees rose significantly. In 2007, Cohan said, costs ranged from $10,920 a year for 4-year-old children to $14,647 a year for infants.

Cohan also explained that some reasons to fear a decline in retirement are on account of collapsing investment returns, and inheritances too small to compensate for a lack of retirement savings.

Saving for Retirement: Knowledge is Power?

Gloomy retirement forecasting aside, the group of participants who completed the Go Banking Rates retirement quiz showed an astute understanding of retirement fundamentals like investing, Social Security and age. Ninety-four percent of participants knew that returning to work after 65 doesn?t stop a person Social Security benefits. Likewise, 81 percent of test takers knew that withdrawing from retirement accounts before age 59 and a half can impose a 10 percent IRS penalty.

Not everyone aced the test. Twenty-six percent of test takers were stumped on knowing the minimum amount of income to save for retirement and believed that a person should save as much as they can afford. The correct answer, following common rules of thumb, is at least 10 percent.

Test takers also stumbled on another income question: ?What is the one element not part of a traditional IRA (Individual Retirement Account)??

Available for single filers up to $95,000; married couples, $150,000 combined. Only 28 percent knew correctly that a Roth IRA, not its traditional equivalent, is available for single filers up to $95,000, and $150,000 for married couples combined.

The quiz is one of six challenging questions-and-answers being published through this month as part of Go Banking Rates? Financial Literacy Movement, an educational outreach campaign designed to raise the level of awareness to improving knowledge of personal finance. In addition to retirement, each week covers one of the primary ?pillars? of personal finance knowledge: Credit cards, credit scores, bankruptcy and debt, mortgages and general banking and savings.

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