The Federal Reserve recently released its updated Survey of Consumer Finances, and it paints a dismal picture for the many Americans counting on 401(k) or IRA accounts for retirement income.
The survey is updated every three years. The latest one reveals that, in spite of the long-running bull market and an improving economy, the typical couple nearing retirement will only receive $600 per month from their 401(k)s and IRAs combined.
“That $600 a month is not indexed for inflation, so its purchasing power will decline over time,” says Pamela, a financial investigator and New York Times bestselling author. “And that $600 a month is likely to be the only source of income people will have to supplement Social Security because the typical household has virtually no other savings outside of its 401(k) and IRAs.”
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Inadequate Gains for Those Nearing Retirement: Households headed by someone between ages 55 to 64 were the only group to experience an increase in their combined 401(k) and IRA balances. The median balance increased from $111,000 in the prior survey to $135,000 – not adjusted for inflation. “That's only a fraction of what a couple needs to survive,” Pamela says.
Younger Workers with 401(k)s Fared Worse: “The 401(k)/IRA balances of households headed by someone age 45 to 54 actually declined by an average of 3% since the previous survey three years ago,” she says. “Their average balance is $97,000. And the retirement account balances of those age 35 to 44 declined by an average of almost 20% since the last survey, to an average of just $40,000.”
What’s to Blame? The reasons cited for such poor performance include persistently high fees and "leakages" that occur from cash-outs at the time of a job change.
Meanwhile, a new analysis of the Federal Reserve's latest survey by the Center for Retirement Research demonstrates that 401(k) plans are destined to fail millions of Americans.
“Continuing to do something that isn’t working is insanity,” Pamela says. “There is a proven alternative to 401(k)s and IRAs.”
She recommends the “Bank On Yourself” method, subject of her two New York Times bestselling books. It’s based on an asset that has increased in value every single year for more than 160 years — a specialized form of dividend-paying life insurance.
“The growth in these plans is guaranteed, and they grow by a larger dollar amount every year,” she says. “You can know the guaranteed minimum value of your plan on the day you want to tap into it and at every step along the way."
About Pamela Yellen: Pamela is a financial investigator and the author of two New York Times best-selling books, including her latest, “THE BANK ON YOURSELF REVOLUTION: Fire Your Banker, Bypass Wall Street, and Take Control of Your Own Financial Future.” Pamela investigated more than 450 financial strategies seeking an alternative to the risk and volatility of stocks and other investments, which led her to a time-tested, predictable method of growing wealth now used by more than 500,000 Americans.