Low savings rate threatens American retirees

Despite all the attention being paid to the problems that may be caused by the imminent retirement of the Baby Boomers and the threat to Social Security, most Americans still aren’t saving enough money for retirement. A new study identifies groups that are most at risk for income shortfalls in retirement. Number one on the list is the low-income single woman, who faces not being able to meet nursing home and home health costs, the study found.

Retirees in this country face a total estimated income gap of $45 billion by 2030, says a study by the Employee Benefit Research Institute and the Milbank Memorial Fund. The study looked at the savings and retirement benefits of various age groups, income groups, and marital statuses. For the first time, the study shows how various groups will fare in retirement as they draw income and benefits from Social Security, Medicare, Medicaid, pension plans, and individual retirement accounts. 

The forecast isn’t all bad. Many middle-income Americans will be able to retire in reasonable comfort if they save just 5% of their earnings in addition to savings and benefits already accumulating in existing retirement vehicles. Younger workers have the best chance of retirement success through additional savings. Couples and those in higher-income brackets also are predicted to do better.

However, single women will have a tough time. The average low-income single woman needs to save an almost impossible 25% of salary, the study found. Women especially should also consider long-term care insurance for themselves and their spouses. Their longer life spans will make them more vulnerable to income shortfalls, especially if their spouses deplete assets to pay for a nursing home stay, leaving women with little for their own care. Such shortfalls cannot be made up with the proceeds from sale of a home or a reverse mortgage, the study said.

The retirement income shortfalls could have a serious impact on employers who won’t be able to persuade older employees to retire, while the economy may suffer if the buying power of retirees begins to decline, the study’s authors said.