American Consumers Newsletter
by Cheryl Russell, Editorial Director, New Strategist Press
No Nest Egg
1. Hot Trends: THERE IS NO NEST EGG
2. Useful Q & A: HOW LONG DO WE LIVE?
3. Cool research links: 401(k) SAVINGS, BUSINESS OWNERS, SOCIAL SECURITY
4. Books for 2005: HOUSEHOLD SPENDING, BEST CUSTOMERS, AMERICAN INCOMES, AND
5. More from New Strategist: WHO’S BUYING REPORTS
BET YOU DIDN’T KNOW
Nine percent of workers say they feel discriminated against on the job because of their age.
There is no nest egg
The line has been drawn in the sand, and it separates the oldest boomers from the rest.
Workers now under age 55 will have to accept much smaller Social Security benefits–like it or
not–if Congress passes President Bush’s privatization plan. Benefits would be guaranteed for
workers aged 55 or older. The oldest boomers, who entirely fill the 55-to-59 age group this year,
must be breathing a sigh of relief. Younger boomers should be tearing their hair out–or better
yet insisting that their Congressional representatives oppose this harebrained scheme.
The fact is, Americans are terrible at saving money. Always have been, and always will.
Without a guaranteed government benefit, funded by mandatory contributions over many
decades, most of us will be poor in old age. Just take a look at the Greatest Generation, the one
with the reputation for scrimping and saving: Without Social Security, the poverty rate among the
Greatest Generation would rise to a stunning 50 percent. Instead, thanks to Social Security’s
guaranteed benefits, the elderly poverty rate is just 10 percent.
Boomers will be equally dependent on Social Security in old age because few have saved
much for retirement. The media love to tout 401(k) plans as though they have been universally
embraced, but few workers actually have one–just 30.9 percent, according to an analysis of
retirement savings by the Employee Benefit Research Institute (EBRI). An additional 9.6 percent
of workers have an IRA but no 401(k). That leaves the 59.6 percent majority of workers with
neither an IRA nor a 401(k) to generate income in retirement. Defined-benefit retirement plans,
which are fast disappearing, cover just 21 percent of private-sector employees. Bottom line: Most
workers do not have a nest egg.
The EBRI analysis of retirement savings contains even more bad news. Among the 30.9
percent of workers with a 401(k)-type plan, the median balance (meaning half have more, the
other half less) is just $14,000. For those with an IRA, the median balance is only $10,000. For
workers aged 45 to 54–the first ones whose guaranteed Social Security benefits will be cut under
the Bush plan–the median 401(k) balance is just $20,000 and the median IRA balance is a paltry
$13,000. This is barely enough to fund even one year of retirement, let alone two decades.
How much is needed for retirement? Without guaranteed Social Security benefits, the
average retiree needs a nest egg of $208,000 to live as well as the average retiree today. This
assumes a modest annual income of just $14,664 (the median income of people aged 65 or older
in 2004) for 18.2 years (life expectancy at age 65), a 5.0 percent rate of return on investment
and a 2.5 percent inflation rate. Trouble is, only 29 percent of workers aged 45 to 54 have saved
even $100,000 for retirement, according to the 2004 Retirement Confidence Survey. Just 10
percent have $250,000 or more.
Surveys of the American public reveal a remarkably casual attitude toward retirement
planning that belies their sorry financial status. Only 51 percent of workers aged 45 to 54 have
tried to calculate how much money they will need to save for retirement, and just 39 percent
have paid much attention to how they will manage their money in retirement so they will not
outlive their savings. But when forced to choose between guaranteed benefits or private accounts
with risk, most Americans are realistic enough to go for the guarantee. According to a January
2005 survey by the Pew Research Center for the People & the Press, the 65 percent majority of
the public wants to keep Social Security’s guaranteed benefit, up from 54 percent who felt that
way in 2000.
By Cheryl Russell, editorial director, New Strategist Publications
If you have any questions or comments about the above editorial, e-mail New Strategist at
BET YOU DIDN’T KNOW
The average household spent 33 percent less on federal income taxes in 2002 than in 1997,
after adjusting for inflation.
Q: How long do we live?
A: All the talk about Social Security has raised the issue of life expectancy, with some
claiming that growing life expectancy justifies an increase in the retirement age.
Life expectancy is a statistical measure of the average length of life based on age-specific
mortality rates in a certain year. For babies born in 2002, life expectancy was 77.3 years, based
on the age-specific mortality rates of that year. Life expectancy at birth has grown enormously
over the past century as medical science has conquered many infectious diseases. In 1900,
newborns could expect to live only 47 years. This figure does not mean that people born in 1900
dropped dead at age 47. It means that so many died in infancy and childhood that the average
was pulled down to 47.
Life expectancy has increased at older ages as well as at birth–although not as dramatically.
Since 1940, shortly after the Social Security system was created, life expectancy at age 65 stood
at 12.7 years for men and 14.7 years for women. Today, life expectancy at age 65 is 16.6 and
19.5 years, respectively–a gain of 3.9 years for men and 4.8 years for women. But the age at
which people can receive full Social Security benefits is also scheduled to increase, rising to age
67 for people born in 1960 or later. This delay reduces the effective gain in life expectancy since
1940 for full Social Security recipients to just 2.5 years for men and 3.3 years for women.
Should the Social Security retirement age rise by the same amount to reflect those gains?
Perhaps. But there are other issues to consider, such as healthy life expectancy. Just because
people are living longer does not mean they are able to get up and go to work. In the older age
groups, life is lengthening not necessarily because people are healthier, but because of better
management of debilitating chronic conditions.
If you have a question or comment, contact Cheryl Russell at email@example.com.
BET YOU DIDN’T KNOW
Among the states, Maryland has the highest median household income, $55,912 in 2002. At
$30,072, West Virginia has the lowest.
To keep up-to-date on ever-changing American demographics and lifestyles, check out these
useful web sites:
No organization does a better job of tracking the retirement preparedness of the U.S.
population than the Employee Benefit Research Institute. EBRI has been mentioned in this space
before, but several new studies available on its web site warrant another turn. Last month EBRI
issued two new reports on retirement–one looking at how well the first cohort of retirees with
401(k)s is doing, and the other documenting the meager savings of those with 401(k)s and IRAs.
As if these interesting studies are not enough, the 2004 Retirement Confidence Survey is also
available on the EBRI site.
The first results from the 2002 Survey of Business Owners, part of the Census Bureau’s
economic census, are now available at the agency’s site. The economic census is taken every
five years, providing detailed data not only on the nation’s businesses, but also on the people
who run them. The first report from the Survey of Business Owners provides statistics on the
characteristics of the 7.7 million owners of businesses with paid employees. Seventy-one percent
are men, and two-thirds say the business is their primary source of income. Reports on minority
and women-owned businesses will be released within the next 18 months.
For an examination of the attitudes of the public toward Social Security reform, see the new
AARP survey, Public Attitudes Toward Social Security and Private Accounts. At this site you can
download results from the national survey taken in January 2005, as well as results from five
states: Arkansas, Florida, Montana, Nebraska, and North Dakota. The findings reveal the difficulty
President Bush will have in selling his proposal to the American people. Floridians, for example,
are almost evenly split in their support for private accounts (47 percent support and 45 percent
oppose), but when supporters are presented with the necessary economic consequences of
creating private accounts–such as cuts in Social Security benefits or more federal debt–support
drops to just 13 to 27 percent.
BET YOU DIDN’T KNOW
Householders aged 55 to 64 spend 44 percent more than the average household on vitamins,
devoting $71 to this item in 2002.
4. BOOKS FOR 2005:
The three-volume American Money Series, plus a long-awaited new edition of American
Attitudes. Order online at http://www.newstrategist.com , call toll free at 800/848 -0842, or fax your order to 607/277-5009.
Household Spending: Who Spends How Much on What, 9th ed. If Americans buy
it, you can probably find out how much they’re spending on it in the all-new ninth edition of
Household Spending, which is based on unpublished data collected by the Bureau of
Labor Statistics. New to this edition is the inclusion of a free CD containing a .pdf file of the entire
book so you can keep its valuable spending data on your hard drive in addition to your
bookshelf. (744 pgs., hardcover, ISBN 1-885070-67-5)
Best Customers: Demographics of Consumer Demand, 3rd ed. Best
Customers analyzes household spending on more than three hundred products and
services. It identifies the best and biggest customers for each item, examines spending patterns
over the past few years, and predicts future trends based on changing demographics. (768 pgs.,
hardcover, ISBN 1- 885070-75-6)
American Incomes: Demographics of Who Has Money, 5th ed. American
Incomes explores and explains the economic status of Americans and includes an analysis
of discretionary income produced by New Strategist’s statisticians specifically for this book.
Library Journal liked the first edition of this valuable book so much that it selected it
as a Best Reference Source. (416 pgs., hardcover, ISBN 1-885070-68-3)
AMERICAN ATTITUDES: What Americans Think about the Issues That Shape Their
Lives, 4th ed. American Attitudes presents a historical look at how our
thinking has changed since the 1970s on a variety of subjects such as abortion, gun ownership,
political party identification, the role of government, and sexual attitudes and behavior. The data
in American Attitudes come from the General Social Survey of the University of
Chicago’s National Opinion Research Center. Until publication of this book, the valuable and
fascinating results of the GSS have not been easily accessible beyond academic circles. (360
pgs., hardcover, ISBN 1-885070-43-8)
BET YOU DIDN’T KNOW
Forty-three percent of Americans prefer to solve problems on their own rather than get advice
or help from other people.
The Who’s Buying series of reports, which are based on the new ninth edition of
Household Spending: Who Spends How Much on What, bring you even more detail
about how much Americans spend by the demographics that count–age, income, household type,
race and Hispanic origin, region of residence, and education. To round out the picture, each
report also presents who-are-the- best-customers analyses of the data, showing at a glance the
demographics of household spending product by product.
The new and expanded Who’s Buying series includes:
- Who’s Buying Health Care
- Who’s Buying Household Furnishings, Services, and Supplies, 2nd ed.
- Who’s Buying Transportation
- Who’s Buying Information Products and Services
- Who’s Buying for Pets, 2nd ed.
- Who’s Buying at Restaurants and Carry-Outs, 2nd ed.
- Who’s Buying for Travel
- Who’s Buying Alcoholic and Nonalcoholic Beverages
- Who’s Buying Entertainment
- Who’s Buying Groceries, 2nd ed.
If you need the big picture for items ranging from wine to cell phones, from pet food to
sofas, go to http://www.newstrategist.com to see detailed tables of
contents and to order downloads or hardcopy.
BET YOU DIDN’T KNOW
Spending on ship fares is dominated by householders aged 55 or older (55 percent), married
couples without children at home (56 percent) and college graduates (57 percent).