In the mid-19th century, Ralph Waldo Emerson remarked that “Society is always taken by surprise at any new example of common sense.” This suggests that common sense has always been a rarity, and if it was rare in Emerson’s time, it is even more so today.
Gradually, the essence of common sense has faded from mainstream thought. Many have come to believe that the right initiatives and policies can create a world devoid of consequences. They also mistakenly think that if they vote for the right leaders, they can enjoy benefits without any cost.
Such ideas are patently absurd. For instance, it takes little common sense to realize that Social Security was destined for failure. The system’s viability was questionable from its inception.
In 1939, John T. Flynn warned that Social Security would be in financial trouble by 1970 and completely insolvent by 1980. Although he was mocked by the political establishment of his time, Flynn’s predictions were remarkably accurate. Had it not been for the Greenspan Commission and the Social Security Reform Act of 1983, he would have only been off by three years.
It is unsurprising that Social Security finds itself in disarray today. The fact that it has lasted this long is actually quite remarkable. Nevertheless, it appears that many are still taken aback by its impending collapse.
Debt Savers
Even though people are aware of the impending failure of Social Security, most have taken little to no action to prepare for the consequences. Instead, many are burying their heads in the sand, hoping that ignorance might lead to resolution.
Sadly, the issues surrounding retirement savings are accumulating like a traffic jam on Interstate 405 in Los Angeles. Aging workers are headed for a serious crash, and for some, it may already be too late to make significant changes.
Remarkably, three out of five families led by someone aged 65 or older have no funds in retirement savings accounts. The false promise of Social Security has led many into a damaging cycle of dependence. Just think about that.
People who have devoted their lives to work find themselves without any meaningful retirement savings. To make matters worse, those who are contributing to defined contribution plans like 401(k)s are often racking up more debt than savings.
A recent study from HelloWallet refers to these individuals as “debt savers.” Here are some of the study’s significant findings…
Dependent Upon A Bankrupt System
“These data indicate that a large share of defined contribution plan participants are accumulating debt faster than they are accumulating retirement savings, and that the majority of these participants are over the age of 40 – a time period when participants are expected to be deleveraging and focused on accumulating retirement savings. This growth in debt can come at the expense of being able to afford increased retirement savings deferrals, increases the likelihood that a participant will breach their retirement savings, and raises the cost of retirement.”
Even more concerning is that workers between the ages of 50 and 65 with defined contribution plans are accumulating debt at an alarming rate. Simultaneously, their retirement savings represent only about 12 percent of what they will actually need to live comfortably post-retirement.
“The monthly debt obligation of active defined contribution plan households near retirement (between 50 and 65 years old) increased by 69 percent between 1992 and 2010, now adding up to about $.22 of every $1.00 earned…. Yet, the retirement readiness of defined contribution participants remains stubbornly low: the typical worker near retirement only has about 2 years of replacement income saved, or about 15 years short of the median lifespan post-retirement.”
Ultimately, people have arranged their lives in such a way that they are now entirely reliant on a failing Social Security system at one of the most vulnerable times in their lives—when they can no longer work. It’s unclear how they reached this point, but the reality is undeniable.
If you find yourself approaching retirement while accumulating debt faster than your savings, it’s time for significant changes. The sooner you can reorganize your lifestyle to reduce debt and increase savings, the better off you will be. Most likely, you know the steps you need to take—it’s not overly complex; it’s just a matter of applying some common sense. You may just need a gentle push in the right direction.
Sincerely,
MN Gordon
for Economic Prism
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