Brett Arends's ROI: Here’s how much the average working boomer has saved for retirement

United States

Three news items that say a lot about the retirement crisis facing Americans and what we can do about it—if we want to.

The first is a survey of 1,000 working Americans conducted recently showing much, or little, they have saved for retirement. And the picture isn’t so much bleak as devastating.

Less than half of those surveyed have saved $ 100,000: Not even close to enough to support a median income of around $ 40,000 a year in retirement. One in six say they have saved nothing. A third are currently making no contributions. And it’s not just the young, who do at least have decades to make up the ground.

Respondents who are still working, with a median age of 60, have average savings of around $ 112,000.

One quarter of those surveyed, and 30% of millennials, said they were planning to rely on “cryptocurrencies” to finance some of their golden years.

Yes, good luck with that. Meanwhile the crypto bubble continues to deflate.

The survey was conducted on behalf of home financing and real estate website Anytime Estimate.

Probably the saddest part of the survey was that around 80% of people expected to see their living standards fall in retirement, while 10% feared they wouldn’t be able to retire at all.

For those who are young, the only answers are to save more, save earlier, and invest better—which usually means investing in long-term assets like stocks and keeping your costs low.

Those who are older don’t have that luxury. In most cases they will need to rely on Social Security providing the bulk of their retirement income.

That brings me to the second item: Yet more information on how Social Security’s underlying investments are doing.

In a word: Badly. As usual.

The Social Security dollars forcibly extracted from your paycheck have been poured so far this year into bonds paying interest of between 1.625% and 3%.

This, at a time when consumer price inflation is running at nearly 9%.

Last year your FICA dollars were blown on bonds paying just 1.4% interest, and in 2020 less than 1%. So large chunks of that money has already gone to what an old friend of mine used to call “money heaven.”

No wonder Social Security is in a deepening financial crisis.

The fund, almost uniquely among all the pension plans of the world, is invested entirely in low-paying U.S. Treasury bonds.

If you’re thinking that sounds like an unwise investment policy, you’d be right. But there is zero desire in Washington to change it. They like the cheap loans.

They’d rather cut your benefits, which is what they are fixing to do.

Social Security is a “defined benefit” rather than a “defined contribution” retirement plan, so your benefits aren’t directly tied to the investment returns from the underlying assets. Instead your benefits are set by law—but are supposed to be financed by the underlying assets. The poor investment returns mean those assets are running out. Which is why people are talking about cutting Social Security benefits.

Heaven forbid they should improve the returns.

Compare and contrast with sovereign-wealth funds run by other, less incompetent national governments around the world. Australia’s Future Fund just announced a change of leadership: Chief investment officer Sue Blake is standing down for personal reasons.

The Australian fund invests money on behalf of the Australian people, just as Social Security was supposed to invest on behalf of the American people. But there’s a big difference. Australia invests the money sensibly, in stocks, real estate, infrastructure, timberland, government bonds, corporate bonds, and so on.

Australia’s Future Fund was set up in 2006. Since then its average return has been 8.4% a year, well ahead of target and enough to increase the public’s original investment by 260%.

Out of curiosity I had a look at the equivalent numbers for our Social Security fund. Since 2006 it has earned an average return of 3.8% a year, enough to increase an investment by just 80%.

Australians have earned, literally, more than three times as much on their money as we have.

Which is why we have a retirement crisis. Lucky thing that everybody has saved enough privately, right?