Millions, upon millions of Americans believe that they will be A-OK during their retirement years. Actually, they are banking on it, even though their success during retirement hinges more on hope than on assets. More and more retirees each year across the nation fail; they simply run out of money. According to the National Council on Aging, 45% of people over the age of 60 today don’t have enough income to cover their basic living costs. Retirees face having significant health issues. Longevity becomes their greatest risk and many will not be able to manage the custodial care they will need. So, unless there is a major shift in the way pre-retirees prepare for their later years, the U.S. aging population appears to be on track for significant retirement hardship….this is according to a May 2023 poll published by Allianz Life.
As of 2022, baby boomers, the generation born between 1946 and 1962 are 76 million strong. They, and their elderly parents, represent over a quarter of the U.S. population. Interesting enough, they own half of the nation’s wealth and contribute to 70% of consumer spending.
Recent Pew Research reports that fifty-three percent of recent retirees claim that they were forced into retirement for one of these reasons: health circumstances, job loss, mandatory age requirement or to choosing retirement due to the COVID-19 pandemic. According to a recent Alliance for Lifetime Income report, 43% of the baby boomers polled believe that the 2022 stock market setback (after the runup in 2020 and 2021) represented a financial change that negatively altered their future stability.
For decades now, it has been known that Social Security should be only part of one’s retirement income sources. Yet, for most Americans today, it is the sole retirement income source. Research shows that for most all combined accounts put aside for retirement are not near enough to meet the future needs of retirees. The volcano waiting to burst surrounds this question: How are elected politicians going to deal with the solvency of the Social Security Insurance fund? Research shows that by 2040, the number of Americans age 65 and older will have doubled since 2000, and the population of 85 and older will have doubled since 2020. This reveals that the need and reliance on this program is growing at rapid speed. In addition to that, the workforce supporting Social Security recipients has declined. The number of workers per beneficiary was more than 50 in 1946. Today, that ratio has fallen to 2.8 workers! Several reasons attribute to this staggering reality. More and more baby boomers are reaching retirement age and exiting the workforce. The extended untaxed stimulus payments following the Covid-19 pandemic discouraged able workers to remain out of the workforce. The number of adults who have chosen to work “gig jobs” and are not reporting their income, thereby not contributing towards FICA taxes. Additionally, adult children continue to live with parents, or off of their parents, stretching out college studies deferring the time when they have to get a job and work for a living. Far too many in our nation today suffer from the plague of not wanting to work, symptomatic of being encouraged to pursuing their passion which mirrors their past-times.
Expenses that retirees most underestimate
During the early years of retirement, retirees are excited not to be tethered to the job and having free time want to get out and seek adventure. Two prominent expenditures that tend to be much higher than budgeted for are travel and eating out at restaurants. Nearly 40% of new retirees report having spent a good bit more on travel than they originally thought. The average American couple age 65 and older spends approximately $3800 per year eating out, and that is when at home and not traveling. Both activities are escapes to spending all of their time at home; especially when there is an abundance of time on one’s hands.
More and more new retirees continue to hold a mortgage. Even if a retiree has paid off their mortgage, they can find themselves spending tens of thousands on home repairs on any given year. Right in step with that is another common expense undertaken: a major house renovation; specifically, bathrooms and kitchens. The necessary funding may not have been appropriated for in their retirement plan. Funds may be withdrawn from investment accounts during a down year in the market or in combination with other major expenditures early in retirement which can result in a strain on their financial position ten years down the line.
Retirees should have budgets, i.e., spending plans, which would include extra for the unexpected expenses that crop up. A big expense that catches retirees off guard can be the cost of care for elderly parents who becomes financially dependent on the adult child. Take this example: a parent becomes incontinent, needing diapers, changing five, six, eight times a day. This can be a cost that most don’t contemplate. Adult diapers can cost $47 for a pack of ten. At six diapers per day, that amounts to $846 per month. The National Council on Aging says that 80% of households with an older adult are struggling financially today, or they are at risk of economic insecurity to themselves.
Costs that simply creep upward during retirement
Longevity will demand more resources from retirees. Overall health care expenses rise annually keeping up with the cost of inflation. According to an annual Fidelity study on healthcare costs for retirees, the average 65-year-old couple will need approximately $315,000 over the course of their retirement years (assuming that they live to life expectancy) to cover all expected out-of-pocket medical and healthcare related expenditures.
Another cost that inevitable creeps up later in life is that seniors oftentimes find themselves unable to do many physical tasks they had been doing and face no alternative but to hire out. Needs may span from cutting the lawn and pulling weeds, to changing light bulbs, air filters or any number of other odd jobs. This cost for help can add up over the months and years and more often than not, is not planned for when making the decision to retire.
In closing…
The dynamics of retirement planning have dramatically shifted as Americans are navigating high inflation, increased market volatility, financial strains, and other challenges. Adults can take action today to better prepare themselves for their future years. Proper planning is key for attaining retirement goals and that includes financial security. Having a retirement analysis and written financial plan lays out the need and strategy for the accumulation of the funds needed for retirement. That being said, forty-six percent of respondents to a poll said that they cut in half, or stopped saving for retirement in recent years, and have no plans to increase their saving levels in the foreseeable future. The runaway increase in everyday costs stand as the most formidable risk to retirement success today. While most Americans admit that their retirement strategy is either not in existence or derailed, still, many fail to take the necessary steps needed to help them prepare for their financial future and eventual retirement years. Sure, being financially responsible means saying “No” to certain expenditures, trading off immediate gratification for future financial security. The best course is to start early and keep plodding along making retirement planning a lifelong discipline where it becomes second nature and painless. When the time arrives, those that did are very glad of their diligence in fiscal stewardship. Financial independence leads to opportunity. The reward can be sweet, because there is nothing that moves a heart more, than gratitude.
