Retirees Are no Better Off Than They Were in 1999

By Lance Roberts, CEO, StreetTalk Advisors

ICI recently released their retirement plan data through Q3 of 2012.  The chart of the day shows the real (inflation adjusted) total retirement market assets per working age citizen in the U.S.  This includes IRA’s, defined contribution plans, private defined benefit plans, state and local government pension plans, federal pension plans, and annuities.

The good news is that the liquidity induced rally over the last four years has finally, along with plan matches and contributions, recovered much of the lost value that occurred during the financial crisis in 2008.  The bad news is, as shown below, that on average each working age person has roughly only $79,651 saved up for retirement and is no better off today than they were in 1999.

There are two major problems that arise from this.  The first is that for individuals trying to save for their retirement they have lost 14 years of irreplaceable time to do so.  In 1999 an individual with 15 years to retirement had plenty of time to get there.  That is not the case today as they stare retirement in the face and come to the realization that working through their golden years will have to be seriously considered.

Secondly, consumption makes up roughly 70% of the overall economy.  With incomes stagnant, and personal savings rates below 3%, the spread between the cost of living and incomes continues to widen.  In turn, consumption is crimped keeping economic growth weak which exacerbates job creation, income increases and overall prosperity.  With the average income at roughly $55,000 per year – retirees have little margin of error with only 18 months of incomes saved up in retirement plans.

While pundits pound the table exclaiming the return of the next great bull market – the economic underpinnings are sorely lacking.  For retirees – the biggest danger is another recessionary draw down that once again puts them further back from their retirement goals.


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • El Viejo
  • bart

    And would that the real purchasing power of those living on Social Security alone had kept up with CPI inflation.

  • Nils

    Link doesn’t work.

  • Johnny Evers

    I’m 50, and probably like a lot of us, grew up believing that the economy would always grow and the standard of living continue to grow.
    It hasn’t always been easy accepting this new paradigm that we’re now in a no-growth world.

  • El Viejo

    Peculiar, It did work. I checked it. It may have been disabled due to massive hits. Do a Bing search:

  • But What Do I Know?

    It’s funny, but that chart looks much like the NAV of the Pennsylvania state-wide pension funds–which are also pretty much at the same level they were in 1999. In PA’s case, the lack of gain in NAV is due to the fact that their benefit payments exceed their contributions, and the cash flow (as opposed to the asset price appreciation) from their investments has fallen drastically.

    I would imagine the average retiree is in much the same situation. The Fed may have manufactured asset price appreciation, but it hasn’t created cash flow. Consequently, retirees cash in the asset price appreciation every year (in the aggregate)to meet their cash flow needs–thereby keeping their NAV flat.

    Just a theory, but ask yourself why stock outflows have pretty much be consistent during the whole rally from 2009. Retail is selling not because it wants to, but because it has to.

  • El Viejo

    Interesting, the first item on the list now has disappeared. This may have been a false story or a hoax. I followed the link from here:

  • El Viejo

    Pretty sure it is a HOAX. Original link was changed from a page on Prudent Investor
    to a page on DailyCurrant

  • Very Serious Sam

    “I’m 50, and probably like a lot of us, grew up believing that the economy would always grow and the standard of living continue to grow”

    I’m 51. Some decades ago I got explained basics of exponential functions and compounded interests. It then was clear to me that there is no such thing as neverending growth for economy, and thus for standard of living. Can’t be.

    Did this insight change my attitude towards savings for my old age? Yes, no doubt about that. But only partially. I could have spent much, much less and could have saved much, much more than I actually did. Probably because I’m a human being, not a homo oeconomicus.

  • kk

    Lance Roberts is confusing an investor behavior problem, with actual returns of a balanced buy and hold portfolio.

    If one started contributing to a plan in 1999 with an average performing portfolio of three mutual funds, 50% US Large Cap, 30% Bond, and 20% Foreign, with annual rebalancing to these allocations, the portfolio would have averaged 6.03% per year 1/1/99-1/31/2013.

    Slow and steady usually gives one greater real life returns than a tactical (speculation) based strategy.

  • Tom Brown

    Agree… it reads like it was written as a fantasy story by one of Krugman’s many Austrian critics. Or perhaps an Onion article.

  • El Viejo

    Daily Currant is a known satirical site, but the original link(on ZH) that I copied was a page on the Prudent Investor. I tried to remember the exact sequence of events to figure out what happened to see if a new type of spoof is available.
    I think it was an unusual coincidence of timing. The Post was less than an hour old when I found it and things were happening as I was copying the link and pasting here. When I went back to check the Prudent Investor the page was gone and the original link had been changed to The Daily Currant.
    Of course as you have seen on TV everything on the internet is true. /sarc