The future of retirement: Save more, work longer
Saving for retirement
JEREMY HOBSON: Well now to the debt talks going on here in this country. The bipartisan group of lawmakers led by Vice President Joe Biden will meet again today in Washington. There's word the group wants to come up with a deal to raise the nation's debt ceiling and cut spending by early July. Today the group is expected to focus on entitlement reform, and changes there of course could have big implications for the future of retirement in America.
For more on that let's bring in Marketplace Economics Correspondent Chris Farrell. Good morning.
CHRIS FARRELL: Good morning Jeremy.
HOBSON: Well, I imagine retirement could end up looking pretty different in America down the road.
FARRELL: Well, forget the RV, enjoying yourself in the sun. If you're going to sum up the future of retirement in America, there's only one word to describe it -- bleak. I mean look, we're cutting back on Social Security, we're going to cut back on Medicare. And yet McKinsey and Company, the big blue chip consulting firm, its survey says that the average American household is $250,000 short of what it needs for comfortable retirement. Do you know what the average 401(k) balance is Jeremy?
FARRELL: It's $58,000. And then there's that recent study that came out -- it was a survey. About half of American households wouldn't come up with $2000 within 30 days in an emergency. So, here's the mantra -- when it comes to retirement it is "Save more, work longer."
HOBSON: And a lot of the money that we are saving in our retirements for many people goes into their 401(k)s. Can 401(k)s be the primary retirement savings vehicle?
FARRELL: Well, at the moment, it is our primary retirement savings vehicle. It was never designed to be that way. It was really to be a supplement to the traditional pension. The one that is a formula based on years of work and what your wage was, and then you get a check for the rest of your life. But that's what we've got because you know what? In Washington there's no stomach for a universal plan, or some sort of mandate. The expensive of the past three decades is that we don't really know how to invest. The 401(k) puts too much responsibility on us, but we're stuck with it.
HOBSON: And what about the people Chris that are far away from retirement but will be affected if people are going to have to work perhaps into their 70s -- what does it do to the job market?
FARRELL: It's a big deal. During tough times it means that the competition for jobs is going to be fierce -- a limited number of slots. In good times, companies are going to come up with ways to, well, reward their younger workers. "Hey, you get a pay increase." For their older workers -- well, you're not going to get a pay increase but you know when that grand kid is born, take three weeks vacation.
HOBSON: How nice. Marketplace's economics correspondent Chris Farrell. Thanks so much.
FARRELL: Thanks a lot.