Ask just about anyone near retirement age if they think they will have plenty of money to last through retirement and you're likely to see their insecurity.
A new study by the Center for Retirement Research at Boston College shows they aren't being overly pessimistic.
The typical working household close to retirement age had only $111,000 at the end of 2013 in their 401(k) savings plan at work and individual retirement accounts outside of work, according to Alicia Munnell, the center's director. That $111,000 would provide only $500 a month for living expenses if converted to an annuity.
Despite a stock market that's soared the past five years, households have less stashed away for retirement now than they had in 2010. Then, the typical household had $120,000.
Perhaps the decline is a result of ongoing hard times, individuals still recovering from layoffs, struggling with debt, sending children to colleges they can't afford and getting by on paychecks that don't ever plump up.
Munnell's dive into the Federal Reserve's Survey of Consumer Finances about American households shows a dreary picture of the retirement years ahead for most working Americans over 55. Her report raises questions about whether the 401(k) system of preparing for retirement is failing Americans.
In the early 1980s, most employers offered workers pensions known as defined-benefit plans. With those plans, employees who stayed on the job long enough to qualify for a pension didn't have to think about saving or investing. Employers promised to invest and then provided guaranteed monthly payments to former employees throughout their retirement. Munnell says only about 17 percent of private employers still provide pensions.
So employees have to fend for themselves. Half have 401(k)-type retirement savings plans at work. If they save enough, invest well and leave their savings in the plan to grow, they can end up fine.
But Munnell has found that many are failing to do what's necessary to build adequate 401(k) accounts, if they even have the security of a 401(k) at work. Half of the country doesn't, leaving them completely on their own. Ideally, they'd open an IRA. Few do.
Apart from 401(k) plans and IRAs, savings are minuscule, according to Munnell. In 2010, households had $18,300. At the end of 2013, it was only $12,500.
At first blush, the amount people contribute to 401(k) plans seems healthy.
The median savings in a 401(k) is 9.2 percent of pay, with about 6 percent coming from employees, the rest matching money from the employer. While 9.2 percent seems like a good rate, half aren't saving that much.
The problem is exacerbated by inconsistent saving throughout working lives. People may contribute on one job, but not another. When leaving a job, people often take money from their 401(k) accounts and spend it. They also erode savings by taking loans from their 401(k) accounts. It all may seem harmless but over a worklife, thousands — even hundreds of thousands — come out of their retirement sum.
"Leakage remains a serious problem," Munnell said.
Many people also fail to save enough. Employees may assume an automatic 401(k) savings of 3 percent is fine. A person needs to be saving 10 percent during every year of work.
Individuals are allowed to save up to $17,500 a year in a 401(k). Those 50 and older can save an additional $5,500. But Vanguard has found that only 12 percent of people save the maximum.
Hewitt Associates has found that 28 percent of people missed out on free matching money from their employers because they didn't save enough to qualify. And about 21 percent — mostly lower-income and younger workers — don't participate in 401(k) plans that are available to them.
"Unfortunately, delay reduces the likelihood that these workers will be adequately prepared for retirement," Munnell said.
Investing decisions have improved for many employees because most companies offer what are called "target date funds," or funds that do the investing for employees without the individuals having to do any decision-making. Fund managers divide the individual's money into stocks and bonds based on the person's age and years left before they retire. The idea is to invest more in stocks for young workers so their money grows significantly, then use more bonds to cut back risk as the person approaches retirement.
Still, only 55 percent of employees are using simple funds, according to Vanguard.
Munnell said individuals are ending up with thousands of dollars less in retirement money than they should, simply because their employers are providing mutual funds in 401(k) plans that charge costly fees. With funds charging 1 percent of a person's assets, employees will end up with 20 percent less at retirement than they would have had without those expenses, according to Munnell.
"Investors could avoid much of the loss associated with fees by investing in index funds rather than actively managed funds," Munnell said.
The mistakes of not saving, saving too little, borrowing from a 401(K) and paying expensive fees have a huge effect.
Munnell calculates that a 60-year-old in 2013 who had saved since the age of 29 would end up with only $100,000 versus $373,000 if they hadn't been sidetracked by the common mistakes. It breaks down like this: Fees reduce the balance to $314,000; withdrawals during job changes or loans cut it to $236,000; inconsistent contributions further reduce it to $165,000; and a failure to contribute at times can lower the balance to $100,000.
With too little in savings, the typical household is going to be highly dependent on Social Security. But Munnell notes that Social Security is going to provide less to future retirees. The retirement age is moving from 65 to 67, so people who retire at the ages of 62 to 65 will see their monthly benefits cut more than now. In addition, people will need to pay more for Medicare. Medicare payments are taken out of Social Security before the government sends checks to retirees. In addition, higher taxes will reduce their Social Security because benefits are not indexed to account for inflation.
The average monthly Social Security benefit in 2013 was $1,294.
Munnell figures about half of Americans will have to adjust to a lower standard of living in retirement than they were used to in their working years. In a survey early this year by the Employee Benefit Research Institute, only 18 percent of Americans said they were very confident that they would have enough money to live comfortably in retirement.