The Retirement Crisis is Real: More than 50% of Americans Do Not Have Enough for Retirement

The retirement crisis is real.
The retirement crisis is real.

The U.S. is in the midst of a growing retirement crisis, and it’s only getting worse as an increasing number of Americans are less prepared to live on their savings than ever.

According to “The Reality of the Retirement Crisis,” a report released this year by the Center for American Progress (CAP), more than 50 percent of American households do not have enough money for retirement.

Two facts are clear, from the CAP analysis:

  • Millions of Americans are in danger of not having enough money to maintain their standard of living in retirement.
  • The problem is getting worse over time.

CAP notes that even the most optimistic studies find that nearly 25 percent of retirees are falling short when it comes to planning for their financial futures.

“What is made clear is that no matter how households’ needs in retirement are projected or how their incomes, assets, and debts are measured, an unacceptably large share of Americans appears at risk of being forced into a lower standard of living in retirement,” writes CAP researchers Keith Miller, David Madland and Christian E. Weller.

What Does a Retirement Crisis Mean?

The retirement crisis indicates that the answer to the question: “Do I have enough to retire?” is NO! for around 25-50 percent of Americans.

However, this does not mean that those who do not have enough money saved retirement can not retire. This does not mean that they will necessarily be living in the poor house.

The retirement crisis means that people have not saved enough to maintain the quality of life they enjoy while working when they retire. The retirement crisis means that the quality of life you have while working will be less when you retire.

Why is There a Retirement Crisis? Why Do People Not Have Enough for Retirement?

There are many reasons for the retirement crisis.

  • Life expectancy has increased meaning more years that you need to pay for in retirement
  • The retirement age for full Social Security benefits has risen to age 67 while people are often retiring at age 65 or before. This gives workers more years of expenses to cover while also forcing them to wait longer to begin receiving these full benefits, according to CAP’s analysis.
  • The CAP analysis also notes that health care costs have also risen substantially, thus resulting in higher expenses for retirees.
  • The decline in real interest rates since 1983 means that a given amount of wealth accumulated today now produces less retirement income than it would have in previous decades.
  • And, the decline in pensions has meant that people have had to rely on their own self discipline to save for retirement with limited success.

Americans face a “retirement crisis” in not being proactive in planning for their financial future, the result being the increased risk of having insufficient savings later in life.

Approximately 31% of Americans reported having zero retirement savings and lacking a defined-benefit pension as of 2013, according to a recent household survey conducted by the Board of Governors of the Federal Reserve System. This means nearly one-third of people in the U.S. currently don’t have money put away in any type of retirement account to supplement their Social Security benefits—a crisis indeed.

For all of these reasons, it is important for workers to approach retirement with greater wealth as it relates to their income. But it has to start with becoming motivated to plan ahead.

How Much Money Do I Need to Retire? How to Get Out of Retirement Crisis Mode

The most successful way to get out of “retirement crisis mode”is to be proactive—to begin saving and planning and start doing it sooner rather than later — though it is never too late.

“The secret is to begin saving, to take money out of your paycheck and have it invested so you can’t spend it,” says Larry Weiss, CFP, CPA, a San-Francisco based planner affiliated with Next Financial Group, Inc.

If you already have a retirement account, one way to do this is to automate the saving process, Weiss says. That way money is being automatically being allocated to the account without you having to physically move it there yourself.

However, as important as saving for retirement is, it is also critical to develop a really detailed retirement plan. The NewRetirement Retirement Calculator lets you run different scenarios so you can explore:

  • Can I live for less in retirement?
  • Do I have enough to retire if I downsize or get a reverse mortgage?
  • How much money do I need to retire if I work longer and retire later? What happens if I get a retirement job?
  • When is the best time to start my Social Security benefits?

How Much Money Do I Need to Retire? Don’t Forget Healthcare!

One critical mistake many people make when planning for their retirement is failing to consider the impact of health care costs and long-term care expenses associated with them.

A harrowing truth is that one day you might get that bombshell health issue. But whether it’s a trip to the emergency room or something that requires ongoing, extensive medical care, you will have to prepare for how health care expenses—whatever they may be—can impact your retirement plans.

“A lot of people are going to get that bombshell that will force you to think what does that mean for your financial health and how are you going to manage that?” says John Shearman, principal at IV Lions, a financial advisory firm based in the San Francisco Bay Area.

Many retirement calculators do not include information about paying for healthcare. The NewRetirement Retirement Calculator builds healthcare costs into the assumptions and helps you see what happens to your monthly budget if you experience a health crisis.

At least 70% of people over age 65 will require long-term care services or supports at some point in their lifetime, according to the Centers for Medicare & Medicaid Services’ Medicare & You National Handbook 2015.

For some people, making an extra contribution to their retirement assets such as a 401(k) plan may be necessary to prepare one’s self for health care expenses. There are, however, other ways to plan for these types of costs. Long-term care insurance, depending on the policy you choose, covers the costs of prolonged care services such as those you would receive in an assisted living or skilled nursing facility. It’s important to note that policies cost less if you are younger and in good health.

It’s equally important to understand that long-term care insurance isn’t right for everyone. If you find yourself struggling financially now, paying thousands of dollars toward an LTC policy might not make sense.

Avoid the Retirement Crisis

Getting the professional help you need to make informed decisions about how to strategically plan ahead and financially prepare yourself for life’s uncertainties is a good way to try to avoid the retirement crisis.

There’s no better time than the present to begin exploring your options. And it starts with getting trusted, professional help — a retirement calculator or a financial professional.

“Each of us should have a roadmap to the future,” Weiss says. “And even if the map shows shortfalls, it gives us the information we need to take steps to protect ourselves and our families for the future.”

NewRetirement Planner

Do it yourself retirement planning: easy, comprehensive, reliable

NewRetirement Planner

Take financial wellness into your own hands and do it yourself retirement planning: easy, comprehensive, reliable.

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