A new report unveils the retirement insecurities of retirees and workers 50 years of age and older, and it’s not pretty. Retirees and those approaching retirement fear declining finances and deteriorating health, leading to not-so-golden years.
How Many Feel Confident About Their Retirement Situation?
Only one in four are very confident they can maintain a comfortable lifestyle throughout their retirement, according to a new report released by the nonprofit Transamerica Center for Retirement Studies.
Is Retirement Not Great for Americans?
“Retirement brings freedom and time for pursuing personal passions. Our research finds that retirees are happy, purposeful, and have a positive view of aging. However, many are financially vulnerable and risk running out of savings,” said Catherine Collinson, CEO and president of Transamerica Institute and TCRS.
Is It The Life They’ve Been Dreaming Of?
“Pre-retirees and retirees dream of travel, spending more time with family and friends, hobbies, and volunteer work. Yet their positive outlook is clouded by financial and health-related fears,” said Collinson.
Retirement Is Also a Big Mindset Change
“Transitioning from a mindset of saving to spending is a major psychological shift, and it’s entirely natural to feel anxious about whether you’ve saved enough to cover your lifestyle needs both now and in the future,” says Brett A. Koeppel, a CFP who works specifically with families who are either at or near retirement at Eudaimonia Wealth, a fee-only financial planning firm in Buffalo, NY.
What Are Their Greatest Fears?
The greatest retirement fear among age 50+ workers is outliving their savings and investments. The greatest fear among current retirees is that Social Security will be reduced or cease to exist in the future.
Additionally, 4 out of 10 fear declining health that requires long-term care and its associated costs.
Financial Fears About Retirement Are Well-Founded
“Retirees and pre-retirees have limited financial means. Both are susceptible to a turbulent economy and inflation. A harsh reality is that many lack the resources to cover the cost of a major financial shock. If a market downturn, personal health emergency, or natural disaster strikes, many may find themselves in a dire situation,” said Collinson.
Some People Really Do Run Out Of Money in Retirement
“It happens. But the people who are afraid of it the most are the ones who usually have the least reason to be so. It’s often the ones that aren’t concerned about it and haven’t prepared themselves well who will most likely run out of money,” shares Ellen Masters of Masters Financial.
“I tend to see people fall into one of two camps in retirement. They either have way more money than they’ll ever need (or use) and have lived frugally for so long that it’s hard to adjust their habits to spend the money. Or they don’t have enough money to maintain their pre-retirement standard of living, and retirement isn’t an option,” she adds.
How Much Do People Have Saved for Retirement?
The Harris Poll/ Transamerica Institute Study found that retirees have saved $73,000 in total household savings, excluding home equity, while age 50+ workers have saved $133,000 in total household retirement accounts.
How Are People Planning to Fund Their Retirement Then?
People expect social security to be their primary source of money in retirement. Only one in five retirees (19%) expect to primarily rely on income from a company-funded pension plan, compared with just 10% of age 50+ workers counting on one.
But Pension Plans Are a Thing of The Past
For most non-government workers younger than 40, pension plans are thing of a by-gone era. In contrast, 26% of age 50+ workers expect to rely on 401(k)s, 403(b)s, and IRAs, compared with 11% of retirees. A noteworthy 11% of age 50+ workers expect to rely on income from continued work. Just 1% of retirees and age 50+ workers expect to rely on home equity or an inheritance primarily.
Avoid These Common Pre-Retirement Mistakes
“Many pre-retirees and retirees are experiencing pitfalls that could be potentially mitigated through improved planning,” said Collinson. “Fewer than one in four aged 50+ workers and retirees have a financial strategy for retirement in the form of a written plan.
Thinking That They Can Continue to Work
Fifty-six percent of retirees retired sooner than planned, with many indicating they did so for personal health and employment-related reasons.
Yet only 31% of age 50+ workers have a backup plan for income if forced into retirement sooner than expected.
Didn’t Plan for a Long Retirement
While workers have a vision of when they want to retire, many have yet to contemplate the duration of their retirement.
When asked the age they plan to live, 47% of retirees and 39% of age 50+ workers say they are “not sure,” which is a reasonable answer but not practical for financial planning.
Claiming Social Security Benefits Too Early
Retirees receiving Social Security benefits most often begin at age 63. Thirty-one percent started at 62, the earliest age possible for Social Security retirement benefits – albeit at a 20% to 30% reduced benefit depending on their birth year.
Only four percent of retirees waited to receive benefits at age 70, the maximum age that brings higher benefit payments.
Not Prioritizing Their Health
Most are concerned about health in older age, yet few consider long-term health when making lifestyle decisions.
Health issues can undermine quality of life, and given the cost of care, they can also have a negative financial impact.
Failing to Plan for Long-Term Care
Only 14% of retirees are very confident they will be able to afford long-term care if needed. Almost half of retirees (46%) plan to receive care from family and friends if their health declines. While shockingly, 31% percent do not have any plans for long-term care.
Don’t Get Advice from a Financial Advisor
Fewer than four in 10 retirees and those approaching retirement currently use a professional financial advisor.
“Many retirees and pre-retirees are financially fragile due to the evolving retirement landscape and the increasing societal expectation that workers self-fund a greater portion of their retirement income without the know-how or resources needed to succeed,” added Collinson.
Luxe Lifestyle But Low Savings
“The real concern should be around affording the lifestyle they want. This is especially true for retirees with a high income but behind on retirement savings,” says Mike Hunsberger, ChFC, CFP, CCFC, Air Force Veteran, and Owner of Next Mission Financial Planning, dedicated to serving the military community.
Social Security will cover a smaller portion of their normal spending than someone with a more modest income. High-income earners who haven’t saved will be forced to make potentially significant lifestyle changes. ”
Not Taking Into Account Inflation
“The fear of running out of money is very real, as life becomes more expensive, thanks to inflation,” says Carman Kubanda, CFP, ChFC, Financial Planner, Innovative Wealth Building. “I’ve heard from many retirees that they’ve had to cut back significantly to adjust.”
Keeping Up With The Joneses
“It is important to identify key experiences and activities that you would like in retirement and make a plan that focuses on those experiences and limits other expenses. It is surprising how often retirees may change their retirement expenses to keep up with the Joneses,” said Amar Shah, CFA, CFP at Client First Capital.
Living Like There Is No Tomorrow
“We have seen the impacts on clients emotionally when friends and loved ones pass away earlier than expected and the client’s mindset around retirement shifts as a result,” says Jon McCardle, AIF, President, Summit Financial Group of Indiana.
“They can begin to think they, too, may not live long, so why not start spending their money now while they can enjoy it because tomorrow may never come. This perception can be a part of the grieving process and, if not handled properly, can create significant problems down the road financially.”
So What Should People Start Doing to Have a Better Retirement?
Here are tips from financial professionals on how people can set themselves up for a more financially secure and comfortable retirement.
Step One Is Understanding Where You’re At
“Improving your situation starts with understanding your situation,” said Tony Madsen, Certified Financial Planner at New Leaf Financial Guidance.
“We do this by fully understanding where someone is today. What assets do they have at their disposal? What income streams will they have in retirement? What other factors are at play? From here, we can model the potential outcomes and the range of income a person can expect to have in retirement,” he continues.
If You’re Young, Time is Your Best Asset
“For the young adults in their 20s and 30s, the mantra should be to start saving and investing as early as possible. Even a modest portion of your paycheck set aside can compound over time, growing into a significant sum as the years roll by,” advises Doug Greenberg, President of Pacific Northwest Advisory
Don’t Forget About Taxes Owed
“As you approach retirement, it’s important to be mindful of the nature of how you’ve saved your retirement nest egg and how taxes will impact your planning. If you’ve saved on a traditional pre-tax basis, remember that you’ll need to pay income tax on that money in the year you take it out.”
“With a mix of pre-tax and after-tax savings, you’ll have more flexibility and optionality with how you choose to replace your income, which can reduce the overall amount of taxes you pay,” continues Koeppel.
Pre-Retirees Can Do A Run Through
“I like to take pre-retirees through a “live-like” period. If your projections show a certain income level is possible in retirement, why not start living like that for some time before actually pulling the plug on work? It eases the fear of not knowing what it’ll be like and often frees up some additional cash to prepare for retirement,” adds Madsen.
Don’t Forget About a Health Savings Account
Consider a Part-Time Job in Retirement
“For those younger retirees, make plans to remain active and possibly seek out a part-time job or another full-time job to help supplement your lifestyle,” says McCardle. “Sometimes the job is more about fun and fulfillment than economic gain, like a hotel desk clerk whose employer offers travel benefits or a golf-course employee who offers discounted or free golf.”
5 People Who Reached Financial Independence In Their 30s (And How You Can Too)
Most Americans have less than one year’s worth of expenses saved and know they need to make strides to improve their finances. If you’re struggling with money, we’ve gathered insights, advice, and tips from those who’ve seemingly done the impossible – reached financial independence three decades before the average person.
Here’s how five people saved and invested enough money to reach financial independence in their 30s and either quit working, moved to part-time, or only continued because they still enjoy their jobs.
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Does the idea of early retirement sound appealing? It’s a lifelong dream for millions of Americans, but it could become a reality when you make smart money moves at the right times.
Achieving early retirement often requires sacrifices throughout your life. In your working years, you’ll need to avoid the temptation of keeping up with the Joneses to ensure more of your money is saved for retirement than squandered on shopping sprees.
How To Save Money: 51 Ways That Won’t Leave You Feeling Deprived
What if learning how to save money on a few everyday things could significantly improve your financial situation? What if you picked most of these and challenged yourself to save $10,000 in one year? How amazing would that be!
Would you be game?
53 Ways You Can Embrace Frugal Living Today
For some of us, frugality comes naturally. But for others, frugal living conjures up images of a miserly, meager existence. No wonder so many tune out when the topic of frugality comes up!
But what if I told you living frugally doesn’t have to be painful or boring? And—what if I also told you it could bring financial peace, security, and even freedom? It’s true. A frugal lifestyle can provide all this and more.
20 Ways to Push The Reset Button and Embrace Lifestyle Deflation Without Deprivation
As you progressed in your career, perhaps you upgraded different parts of your life. You worked hard, and every dollar you earned was a new opportunity to support yourself, buy something fun, or have exciting experiences with new people. As you made more money, you probably bought more things, went on more vacations. Maybe you upgraded from an apartment to a house. Or from an inexpensive area to the center of a city. Or from a cheap used car to buying your dream car.
How far down the lifestyle inflation path you go depends on when you pause to reflect. Let’s look at 20 ways to nudge your mindset in a new direction.