Retirement researchers and policymakers love to debate this question: Is there a retirement crisis in the United States?
Both sides can put together numbers to back up their arguments. But the simple truth is that the majority of older households approaching retirement are simply not financially prepared.
The most important measure of financial preparedness is your ability to replace your work income after you retire, that is, your ability to maintain your standard of living. As a rule of thumb, financial planners tell us that most people will need to replace at least 70% of their wage income in retirement.
Anyone who hasn’t been able to save much for retirement will rely solely on Social Security — and that typically only replaces around 40% of pre-retirement income.
Many households will struggle to bridge this gap, and it’s what prompted me to write my new book, “Retirement Reboot: Commonsense Financial Strategies for Getting Back on Track” (Agate Publishing). The intention is to guide readers through a series of strategies that can improve retirement security, even with a late start.
Traditional financial planning wisdom stresses the importance of starting early – and there’s no doubt that having time on your side gives you the critical advantage of capitalizing as you contribute to retirement over the years.
But “Retirement Reboot” offers a roundup of possible levers you can pull relatively late in the game. These aren’t necessarily easy steps to take, but they are achievable. And these are not gimmicks.
Strategies include developing a clear financial plan and taking a strategic approach to planning for your retirement. Equally critical is paying close attention to getting the most out of Social Security and Medicare. And, since home equity is often the most important asset on a household’s balance sheet, I’m exploring ways to unlock it in retirement.
RETIREMENT IN FIGURES
The numbers tell us that huge numbers of Americans nearing retirement need to consider these fundamental strategies. Federal Reserve data shows the median retirement account balance in 2019 for a household of near-retirement workers (55-64) was just $144,000 — an amount that won’t last very long. long retired.
The Elder Index, produced by the Gerontology Institute at the University of Massachusetts in Boston, measures the cost of living for older people living alone or in a couple. It’s built around typical senior budgets and shows that about half of Americans over 65 living alone have incomes below the index.
What explains these appalling figures?
I’ve been covering retirement for 15 years now, and as a student of the system, I estimate to have produced nearly 1,000 articles and podcasts, and conducted over 3,300 interviews on topics ranging from Social Security and late-career workplace health insurance, investing and savings, workplace retirement plans, pensions, taxes, financial planning, housing, careers, long-term care duration and delivery of care.
Here’s the most important thing I’ve learned: complexity is the enemy of Americans who work every day and are trying to prepare for a financially secure retirement.
The United States has created a set of retirement systems that require expertise and knowledge beyond what can reasonably be expected of the average person.
The complexity of these systems makes it more difficult for individuals to make fundamental personal decisions about their own retirement planning: how to save and invest for retirement. How to stay employed later in life. Determine the right time to retire. When to file a claim with Social Security. How to switch from employer health insurance to Medicare and make smart enrollment decisions. What to do with long term care insurance. How to hire a reputable financial planner. Even experts tell me they have trouble with these questions themselves or when trying to give advice to friends and family.
We also tend to have short memories in this country when it comes to economics. Americans nearing retirement have gone through a number of very damaging economic cycles.
If you were 55 in 2021, you have experienced four recessions which may have left you unemployed for long periods of time. Two of them have been particularly devastating for older workers: the Great Recession of 2009-2010 and the pandemic-induced economic coma of 2020. Both of these downturns have resulted in higher job loss rates – and periods unemployment – for older workers than for younger ones. those. Millions of homeowners lost their homes or found themselves underwater in the real estate crash that accompanied the Great Recession. These economic calamities had lasting effects from which it was very difficult, if not impossible, to recover.
This economic volatility, coupled with stagnant wage growth, is a big reason why so many households don’t have significant retirement savings.
Policymakers have attempted to address these issues with legislation to expand access to retirement savings plans, automate the system, and increase tax breaks. But this approach produced very marginal improvements in retirement security. Simply put, many of these households do not have the cash resources to set aside in tax-deferred retirement accounts after meeting their immediate household spending needs.
Instead, we should renew our focus on our social insurance system – Social Security and Medicare – which are the foundations of retirement security in the United States. Expanding and modernizing these essential programs offers the best policy path to reinvigorate retirement security.
Source: Reuters (written by Mark Miller and edited by Matthew Lewis)