An alarming number of Americans are still unprepared for retirement.
In a recent conversation on Yahoo Finance’s Financial Freestyle with Ross Mac (see video above or listen here), Derek Ferguson, chief administration officer at TIAA, sounded the alarm that retirement savings numbers remain dismal, and even more so for marginalized and underbanked groups, such as African Americans.
Nearly 40% of Americans risk running out of money in retirement, he said, while 53% of African Americans will likely outlive their retirement savings.
“If that system is broken, everything breaks down,” Ferguson said about saving for retirement. “These deficits are going to lead to a definite gap in how people retire.”
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Ferguson, who attended Wharton and Harvard and served as interim CEO of the Robin Hood Foundation, an organization seeking to alleviate poverty in New York City, pointed to a cycle that some fall into when their retirement isn’t properly funded.
When parents run out of money in retirement, they leave it up to their children to fund them. That results in children “taking money out of what should be [their] nest egg,” he said, “which [they] should be passing down to [their] kids.”
It creates a “generational deficit,” according to Ferguson.
Read more: How much money should I have saved by 50?
A recent survey by Allianz found that concerns about running out of money have increased in recent years.
“Running out of money in retirement is a scary thought,” said Kelly LaVigne, vice president of Consumer Insights at Allianz Life. “That’s why it is so important to have a thorough financial strategy for retirement.”
TIAA was founded by Andrew Carnegie to help America’s educators retire with enough money. The organization aims to offer retirement vehicle solutions that provide lifetime income to retirees. But getting the word out to underbanked communities has also proven challenging.
If someone needs money tomorrow but doesn’t get paid for another two days, Ferguson said, they might opt for a service such as a cash advance. Under certain agreements, they could end up “paying 300% on that loan,” he said.
According to Ferguson, closing these gaps requires economic access to retirement plans.
Employer-provided retirement plans that Americans pile into often result in a lump sum payout upon retirement. “That money is the money that can run out,” he noted.
Saving and investing in plans that pay guaranteed income can also help close these gaps.
“We believe, and we have seen through studies, that people need guaranteed income to assure they can pay all their bills [and] have enough income flow in retirement,” he said.
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