Retirement Savings Crisis

My eyes latched on the headline: “Many boomers lack retirement fund.” My wife, Judi, and I had just been talking about retirement. The day before we had returned from two weeks with our kids and their families. With two grandsons—and a third coming soon—it’s getting harder to live 1,800 miles away. We wondered when we might be able to give up the salary and move closer to our family.

I continued reading. “Nearly one-third of baby boomers ages 51 to 61 are at risk of not having enough in savings to finance a comfortable retirement.” That’s us! We’re in that age group. But are we in the one-third?

I found the website for the Center for Retirement Research (CRR) at Boston College to read the report quoted in the article. Here’s what I found.

CRR formulated the National Retirement Risk Index (NRRI) to ascertain how Americans are doing in preparing for retirement. A household is considered “at risk” if its retirement income falls more than 10% below that needed to maintain its pre-retirement standard of living. Forty-three percent of the households in the 2006 report were deemed “at risk.” When you dig down in the data you discover that 53% in the bottom third by household income are “at risk.”

I immediately thought of Nazarene pastors. About 25% of our pastors are bi-vocational, and 70% of Nazarene congregations average less than 100. I’m guessing we’ve got a bunch of pastoral households in the bottom third. I wonder how many may not be able to maintain even a modest lifestyle in retirement.

I kept reading. For those in the lowest third by household income, NRRI estimates that 86% of their “non-earned” (not from current employment) income in retirement will come from Social Security. Hmmm. Where will our pastors be in retirement if Social Security is 86% of their support? I checked my latest Social Security statement. If in retirement Social Security is 86% of my income, I would be living on $12,321 to $16,898 per year depending on my age at retirement. Oh my.

Individual Responsibility

There has been a major shift in pension plans over the past 30 years. Defined contribution plans have replaced many defined benefit plans. Regular contributions to an individual’s retirement account during employment have replaced monthly benefits received in retirement. This shift has put most of the responsibility on the individual to manage, and sometimes fund, the account.

So how are people doing? According to the NRRI report, the median 401(k)/IRA balance for a person approaching retirement is only $60,000, capable of producing only about $250 per month at current annuity rates. More than 20% of those eligible to participate in a defined contribution plan did not do so, the study reported.

In comparison, the median account balance in the Nazarene 403(b) Retirement Savings Plan is $38,000. As of July 31, 2007, 58% of eligible pastors do not contribute to their account. That’s almost three times the national average! Some of those pastors may be bi-vocational who participate in a retirement plan with their other employer. But with only a 42% participation rate, I’m afraid many of our colleagues may be “at risk.”

A person can do a couple of things to ease the financial squeeze in retirement. First, you can work longer. The Normal Retirement Age for Social Security is rising from 65 to 67. At the same time, however, the average retirement age is dropping, now 63 for men and 62 for women. A person who works even a couple of years longer can change the financial outlook in retirement.

Second, you can save more. I always encourage seminary graduates to save something for retirement from the very beginning. I know the financial demands many of them face, but I urge them to find a way to do something. For the experienced pastor, maybe she or he would direct the church board to increase the contribution to the retirement account instead of a salary raise. For those over 50, federal law allows a person to “catch up” for years when contributions were not made. No matter the stage in life, a person can increase financial stability by saving more.

Just yesterday I took another snapshot of our investments to see how we are progressing toward our goals. We’re still on target. It looks like we’ll be around for Grandparent’s Day and baseball games after all.

Originally published by Pensions & Benefits USA.