Retirement planning for Americans is a sad story. Looking at this chart from Kiplinger, it is no wonder most Americans are in a precarious position during their golden years.
The $1,000,000 retirement figure may seem high, even by most conservative estimates. However, with inflation, higher taxes and health/insurance cost soaring in the next few years, I don't think it is a wild estimate.
Growing our retirement nest will prove tricky though. For those who find stocks too volatile, they can sit on cash or invest in fixed income assets. However, you can't get rich or attain that $1 million target with the pathetically low interest rates on fixed income investments.
The situation becomes even more dire if lower wages become the norm and our homes, the most valuable assets, cannot recover from the housing market downturn.
Currently, the money market fund is paying less than 1%, and municipal bonds are in low single digits. By holding interest rates low and ramping up money supply, the Federal Reserve is actually punishing savers and retirees while rewarding risk takers.
The banks borrowed money from the Fed via the TARP program for close to 0%, and invest it in risk free Treasuries, proprietary trading, mortgage loans, as well as charging taxpayers sky high interest on their credit cards!
If we can get 8-10% interest on our savings account, we may require less than a million dollars to retire. Unfortunately, savers like us do not have access to TARP money to speculate.
What we can do is to save as much of our income during our working life. Living a high life with borrowed funds, just to keep up with the Joneses is a no-no. And get used to the idea of retiring later.