According to the Federal Reserve, 40% of workers aged 55 to 64 have no retirement savings accounts at all. Of those who do have retirement accounts, the median balance is $100,000—not enough for most people to maintain their standard of living over decades of retirement.
For people who are already retired, 20% of married retirees and half of single retirees rely on Social Security for the bulk of their income, according to the Social Security Administration. The average monthly income for a 62-year-old is $1,992 this year.
What happened to the comfortable American retirement? Why are things so different from a generation ago?
Say Goodbye to the Good Old Days
To find the answer, we must look back about 50 years to when our country began a quiet retirement transition. No one paid much attention since, at the time, most retirees left the workforce with pensions that were guaranteed for life. Those pensions, plus a boost from Social Security, meant yesterday’s retirees could enjoy a comfortable retirement even if they didn’t save much on their own.
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Today, traditional pensions are almost unheard of. Employer retirement plans like 401(k)s have replaced them, putting much of the responsibility for building a retirement nest egg on workers themselves.
It’s becoming clear now that this transition will not be smooth. The numbers show that it will actually be painful for many workers nearing retirement who are not financially prepared to support themselves.
Debt Sticking Around Longer
Another hurdle today’s retirees must overcome is their own debt load. Studies show that workers aged 55 to 64 are spending 22% of their earnings on debt payments. That’s a 69% increase in less than 20 years.
These debt obligations keep workers in this age group from saving as much as they can for retirement. With their incomes going to cover their bills, few are able to take advantage of “catch-up” savings opportunities available to the 50-and-over crowd.
Health Care Takes a Big Bite
Medical expenses will also be a challenge for workers planning to retire in the next few years. A poll of people in this age group shows that they expect to need about $50,000 to cover health care costs in retirement.
The actual estimate for a 65-year-old couple retiring this year is $220,000. That figure does not include the costs for nursing home care that more than 70% of retirees will need sometime during their retirement.
Hope on the Horizon
We’ve painted a pretty bleak picture. But while there’s no doubt some retirees will face tough times, it’s not all gloom and doom. People are gradually becoming more aware and more responsible about preparing for retirement.
Our own research shows that the more educated workers are about how and when to save for retirement, the more likely they are to follow through with a retirement savings plan. For example, more than half of the readers of Dave’s Investing Minute newsletter who responded to a recent survey told us they already have $100,000 or more saved for retirement.
About half are also investing anywhere from $500 to $2,000 or more a month toward retirement. More than 84% of them are at least somewhat optimistic that they will have enough saved to have a comfortable retirement.
Learn How You Can Build a Solid Retirement Fund
If you’re working through Dave’s Seven Baby Steps, congratulations, you’re on the right track! But if you are one of the millions of workers who have no retirement savings and no plan to build any, you must change that today!
The first step is simple: Talk with an investing professional who can help you create a retirement savings plan based on where you are right now. Then follow through on your plan—never forget that the kind of lifestyle you have in retirement is up to you!