A study by the National Bureau of Economic Research (NBER) reveals a depressing statistic, namely that a significant percentage of people (46.1%) die with virtually no financial assets—less than $10,000, as measured by the researchers.
This means that many either miscalculate what it will take to live on in retirement or as is the case with high unemployment, often are forced to retire earlier than they expected as they cannot find work.
This group of people tends to rely almost wholly on Social Security benefits for support, a source of funding that will increasingly become tenuous as it runs out of money.
The study states:
Based on a replacement rate comparison, many of these may be deemed to have been well-prepared for retirement, in the sense that their income in their final years was not substantially lower than their income in their late 50s or early 60s. Yet with such low asset levels, they would have little capacity to pay for unanticipated needs such as health or other shocks or to pay for entertainment, travel, or other activities.
The authors continue by suggesting:
These persons balance on only one leg of the oft touted three-legged stool that is said to provide retirement support—Social Security, pension benefits, and personal saving. If the one leg is judged inadequate it raises the question of how to strengthen the other legs which in turn may, for example, increase interest in the spread of 401(k)-like plans to low-wage workers in firms with high turnover.
So while many retired persons have accumulated significant wealth, the proportion that lack it may represent a societal crisis, given its size. This is all the more disturbing, giving the additional finding of a very strong relationship between health when last observed and the level of assets just before death. Those in poor health have much lower assets than those in good health.
Are you prepared for retirement