Is it a big wealth transfer or retirement savings crisis? It could be both, experts say

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It can feel like the American economy has divided consumers into haves and have-nots—and retirees are no exception.

Research has found that a major wealth transfer is underway, with research and consulting firm Cerulli Associates estimating $84 trillion to shift from older generations to younger generations by 2045. However, other experts say that a retirement savings crisis may be brewing for some who haven’t put enough aside for their senior years.

Both dynamics are at work, according to Chayce Horton, senior analyst at Cerulli.

“This transfer of wealth will be done on a less than widespread basis,” Horton said.

“There has been a significant amount of wealth that has been created and that wealth is concentrated in increasingly older hands than it has been in a long time,” he said.

Who will benefit from the large transfer of wealth?

Who can fight in retirement

Retirement cost coverage has increased as inflation has made health and long-term care more expensive in retirement. A single 65-year-old individual may need about $157,700 to pay for health care expenses in retirement, Fidelity estimated in 2023. The average 65-year-old couple in retirement would need about $315,000.

“These costs have skyrocketed to the point where many people will die with nothing to live on,” Horton said.

These costs – combined with low pension balances – have led some to say there is a retirement savings crisis in the making.

A majority of Americans — 79% — said there is a retirement crisis, up from 67% in 2020, a recent survey by the National Institute for Retirement Security found. More than half (55%) said they are worried they won’t have financial security in retirement.

The idea that you can work longer if you don't save enough is not true: Teresa Ghilarducci

The average total 401(k) balance was $125,900 in the first quarter, according to Fidelity Investments, with a record total savings rate of 14.2% including employee and employer contributions.

However, these numbers do not include the roughly half of Americans who do not have access to workplace retirement savings accounts.

To force everyone to save, mandatory savings plans that require participation by all individuals may be the answer, Teresa Ghilarducci, a professor of economics at the New School for Social Research, said in an interview Thursday on “Squawk Box.” of CNBC.

“We know that the most important financial power in our markets is the power of compound interest,” said Ghilarducci, author of the book, “Work, Withdraw, Repeat: Retirement Uncertainty in the New Economy.”

“Getting people into a retirement plan early is the only way they can have enough savings at the end of their working lives to supplement their Social Security,” she said.

The data shows that a forced savings approach works, said Ed Murphy, president and CEO of financial services provider Empower. For those earning $35,000 to $50,000 who don’t have a workplace retirement savings plan, they likely won’t save anything.

Once members of that group have access to workplace savings through a payroll deduction, up to 90% will save, he explained.

“We need to get more people saving into the workplace,” Murphy said. “It’s just the most effective way to get people to save.”

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