The Dismal State of Retirement in 2020: How to Turn Lemons into Lemonade

The Dismal State of Retirement in 2020: How to Turn Lemons into Lemonade

The retirement outlook has changed drastically since your grandparents, and even parents, retired. In fact, by some measures, retirement might seem as sour as lemons.

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Is it possible to make retirement lemonade out of retirement lemons?

The Great Recession of 2008-2009 and the Global Pandemic of 2020 have sharply changed people’s attitudes towards and expectations of retirement. The Trans-America Center for Retirement Studies found in their recent study Retirement Security Amid COVID-19: The Outlook of Three Generations that one-quarter of workers in the U.S. have lost confidence in their ability to retire comfortably.

Here are the 10 economic facts that aren’t so sweet:

  1. Not Enough Money: Only half of non retired American adults expect to have enough money to live comfortably in retirement.
  2. Longer Lives (Good News/Bad News): Americans are living longer: More than three out of five 65-year-olds today will reach age 80, a marked increase from 50 years ago. While this is overall good news, it does mean that you need more in retirement savings to cover additional years in retirement.
  3. Higher Out of Pocket Healthcare Expenses: Around one-half of American seniors will pay out-of-pocket expenses for long-term services and supports, such as nursing home facilities or home-based health care.
  4. Pensions Have Gone Away: In 1978, two-thirds of dedicated retirement assets were held in traditional pensions; by contrast, only one-third are today.
  5. Wealth is in Homes, Not Just Banks: Middle-class households near retirement age have about as much wealth in their homes as they do in their retirement accounts.
  6. Wealth Disparity: Among households near retirement age, those in the top half of the net worth distribution had more wealth in 2020 than their counterparts did in 1989, while those in the bottom half had less wealth.
  7. Home Equity is Important: Home equity is a very important source of net worth to all but the wealthiest households near retirement age.
  8. Financial IQ is Low: Basic financial concepts are not well understood by many Americans.
  9. Not Enough People Are Contributing to Social Security: The ratio of current workers to current Social Security beneficiaries is half what it was in 1960.
  10. The Government Wants You to Save: Federal tax breaks to incentivize retirement savings totaled nearly $100 billion in 2014.

How to Make Retirement Lemonade Out of Retirement Lemons

The picture looks bleak, but as Franklin Roosevelt once famously said, “the only thing to fear is fear itself.” Here are some ideas for making retirement lemonade out of retirement lemons.

Tap Your Home Equity

There are two findings about home ownership that could be a silver lining of opportunity for retirees worried about having enough money for retirement.

According to the research, “Even among households nearing retirement age, much of net worth (i.e., total assets minus total liabilities) is held outside dedicated retirement accounts… over the past quarter century the largest single source of wealth for all but the richest households nearing retirement age has been their homes, which accounted for about two-fifths of net worth in the early 1990s and accounts for about one-third today.”

Given that so much of Americans’ wealth is tied up in their homes, it would stand to reason that this will be a resource to them in retirement. However, seldom do retirees view their home equity as a source of cash flow – even though there are tools to convert that home equity to make it liquid.

“Home equity is an important source of wealth for middle income households, accounting for more than one-third of total net worth for the second, third, and fourth quintiles of the net worth distribution,” the report states. “However, housing wealth is not a liquid asset, and homeowners rarely access home equity during retirement through financial products such as reverse mortgages or home equity lines of credit.”

In fact, fewer than 2% of those eligible for a reverse mortgage are taking advantage of one today. Other ways to release home equity include: downsizing and home equity loans. The NewRetirement Retirement Calculator enables you to assess and compare ways to tap hour home equity for retirement.

Make Trade-Offs

Delaying the start of retirement by working longer and waiting to start Social Security benefits until your maximum retirement age are two really effective ways to make up for not having saved enough money.

The really good news about working longer is that people who work tend to be happier and healthier than their fully retired counterparts.

Since we are living longer lives, you will still have quite a few years to enjoy retirement.

If that does not appeal to you, then you will need to think about tapping home equity (see above) or figure out other ways to spend less.

There are people who live frugal but meaningful lives on Social Security income alone. And, if you have waited to start Social Security, then you have a significantly bigger monthly paycheck.

So, if you have not saved enough, the trade off is work longer or live on less.

Get Help With Personal Finance

The research indicates that most people across all socioeconomic strata do not have a great understanding of personal finance.

The reality has been that most of us have lived month to month or year to year, making do with what we earn. The problem is that these financial habits become problematic when we are no longer earning money. Instead of figuring out if you are making ends meet this week, month, or year, you are supposed to figure out how to pay for the rest of your life with a fixed amount of resources.

Working with a financial advisor can help you. Online resources are another way to bolster your understanding of financial concepts. The NewRetirement Retirement Calculator is a unique tool that lets you discover which financial strategies will work for you. It does not tell you what to do, but lets you “try on” different ideas and immediately see what impact they have on your finances – now and into your future.

Stay Healthy and Optimize Health Insurance

Healthcare costs have skyrocketed and they continue to go up. There are two ways you can combat these costs:

  • Stay healthy: Taking care of yourself, eating right, and exercising will make you happier and healthier. It might also save you money on health expenditures.
  • Buy the right supplemental insurance: Medicare does not cover all health costs. Many retirees buy Supplemental Medicare policies which can reduce your out of pocket healthcare spending. However, what is covered by each policy varies widely. It is a good idea to shop and compare your policy every year to make sure you have the right coverage for what you need as both your health and the policies evolve.

Buy Your Own Pension

If you are lucky enough to have some retirement savings, you might want to consider buying an annuity. An annuity is like a pension you buy yourself. A lifetime annuity enables you to buy monthly income for the rest of your life – no matter how long that turns out to be.

Annuities give you predictable income for your lifetime. Find out how much income you can buy with the annuity calculator or you can use the to “try on” an annuity (and dozens of other retirement strategies) by using the NewRetirement Retirement Calculator.

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