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What Retirement Readiness Really Means

The overall savings outlook for older workers isn’t as dire as a recent GAO report contends, according to Nevin Adams, who stresses that these reports often miss a larger point: Americans with access to a retirement plan are far better off than those without it.

In his “Inside the Numbers” column in the Summer 2015 issue of NAPA Net the Magazine, Adams discusses a study the GAO released this summer, “Most Households Approaching Retirement Have Low Savings,” which inspired doomsday-level headlines such as “More Evidence of America’s Shortfall in Retirement Savings” and “Americans Stumbling into Retirement.” While there are a number of Americans with low savings, Adams says, readers who only focused on the GAO’s headline missed a bigger picture.

Adams states that, while the survey said that 52% of respondents aged 55 and older didn’t have any retirement savings, this number includes the 23% of all respondents who said they have access to a defined benefit plan, and another 10% who own a home free and clear. While the remaining 19% have a very low median income, Adams writes, they still have Social Security to fall back on, and in either case 19% is a lot lower than 52%.

Retirement Studies: What to Watch for

Adams advises readers to view studies like the GAO’s through a critical lens, while keeping the following four factors in mind:


  • Social Security matters — particularly for lower-income individuals.

  • Average or even median savings amount in the abstract tell you very little about retirement income adequacy at an individual level.

  • Pre-retirement income (or a percentage thereof) may not be a reliable proxy for post-retirement needs.

  • Those who have a retirement plan are much better off than those who don’t.


Readers of studies about retirement readiness should remember that Social Security remains the primary source of income for American retirees, Adams notes, particularly from lower-income individuals. For retirees between ages 65 and 74, Social Security makes up 44% of their average annual income, and that percentage is even higher for those over the age of 75. In addition, blanket savings amounts don’t factor in taxes, the drastic differences in cost-of-living across the country, individual health circumstances, and many other issues that can’t be captured in a single study.

Red Herrings and Real Issues

In addition, Adams says, studies like the GAO’s use pre-retirement income as a measurement of post-retirement spending, which he says is often unrealistic and disconnected from the actual financial needs of retirees. Instead, he adds, these studies should focus more on the fact that households without savings have about one-third the income of families who do, one-fifteenth of the net worth, and are far less likely to be covered by a defined benefit plan.

In addition to Adams’ column, the Summer 2015 issue of NAPA Net the Magazine highlights what the new generation of plan advisors are thinking — including the 2015 NAPA “Young Guns” list — along with a recap of this year’s NAPA 401(k) Summit in San Diego, and the cover story, which examines five key factors that advisors should look at when determining whether longevity-planning options are right for their clients. The Summer issue also features regular contributors Jerry Bramlett, Warren Cormier, David Levine, Brian Graff, Don Trone, Steff Chalk, Fred Barstein and NAPA President Joe DeNoyior — and marks the debut of a new column on financial wellness by Jania Stout.

To view Adams' column, click here and select "4 Things You Need to Know About Retirement Readiness." And to view a pdf of the full 48-page issue, click here.

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