Americans not financially prepared for retirement

Regardless of what happens to the Social Security privatization initiative, Americans are starting to think about retirement planning. And there is plenty of bad news. Not only are Americans not saving enough for retirement, they actually think that there will be no Social Security so they will rely on their savings when they retire. Sounds incredible? But it is true. That is exactly what Americans are saying in two polls conducted by CBS News/New York Times.

Conclusion:

1. Americans have to stop being in denial about their financial situation and do some simple math to assess how ready they are for retirement. There are several websites with excellent calculators to make such projections for you. Use these tools to get a more realistic picture of how ready you are financially for retirement.
2. You can also meet with a financial planner to further discuss where you stand with regards to being prepared financially for retirement. Stop dreaming, get real.
3. Private investment accounts will not solve your problems. The only way you can be secure about your retirement and improve your current standard of living is to cut back on expenses and make your money work for you by making right investments through a properly designed personal finance plan. So stop watching American Idol or worrying about the divorce of Brad Pitt and Jennifer Aniston, and start listening to what Suze Orman has to say.

Americans do not/cannot save

According to the latest CBS News/New York Times Poll, Americans were not able to save much of their income over the past year, and most of them are concerned about being able to afford major expenses such as healthcare and retirement. This is in line with other surveys that show that Americans are very concerned about their retirement income.

While Americans understand that stock market returns can be higher than other investment options over time, they do not like the idea of privatization of Social Security if it also means that there will no guaranteed benefits. While 56 percent of viewers of President's State of the Union speech, according to another poll by CBS News/New York Times, said they supported the president's idea of allowing individuals to invest a portion of their Social Security taxes in personal investment accounts, but if it meant their guaranteed benefits would be reduced, support slipped to just 42 percent.

It is no secret that we are not a nation that does not believe in saving. And saving has only gotten harder as incomes have fallen in real terms, particularly since 2001, with millions of Americans without jobs or underemployed, and those that do have jobs have not seen their wages rise much. Disposable incomes have fallen further due to higher healthcare costs, local/state taxes, and fees for things that typically used to be free.

26% of Americans were not able to save any money at all during last 12 months. Another quarter of Americans saved between 5% and 10% of their income. This is a recipe for disaster in retirement, if the Social Security benefits reduce, as proposed by President Bush.

Americans are also increasingly piling up bad debt. Credit card debt carried by an average American is now estimated to be around $9,000. (Related article: Debt consolidation tips)

Most Americans say they just are not flush enough to save money. Half of the Americans say their household earns enough income just to meet their bills and obligations, 33% say they earn enough to save and buy some extras, and 17% do not make enough to even pay their bills.

Those under age 30 are less likely than older Americans to say they earn enough money to save and buy some extras; just 24% say this. These are also the most likely group to be in favor of Social Security personal investment accounts. This group sees personal investment account as a way to solve their financial problem and that is not the right expectation. The funds in the investment accounts cannot be used prior to retirement and with proposed cuts in Social Security benefits, the money in the account is simply expected to make up the difference, if everything goes well. (Related article: No net gain for younger Americans from private investment accounts)

Americans also have no idea how bad their financial situation is. Despite such poor financial situations, Americans claim they will rely less on Social Security and more on savings when they retire. Among Americans currently not retired, 55% of them plan to rely on savings to fund their retirement. But 47% of this group saved less than 5% of their income in the past year and another 17% were unable to save at all. In other words, Americans appear to be in denial when it comes to saving and planning for retirement. (Related article: Medical bills greatest cause of bankruptcies)

Looking ahead, just a quarter of Americans describe their household’s financial future as being “very secure.” 54% feel somewhat secure, while 21% are feeling not very or not at all secure about their household’s financial future.

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