Many hard-working Americans dream of one day reaching financial independence – the time when they are no longer forced to work out of necessity. Unfortunately for many, the realities of trying to stash away enough savings to one day retire and maintain a comfortable lifestyle is much more difficult than anticipated. A lack of sufficient income, overspending, unexpected health care expenses and poor planning have all contributed toward the retirement epidemic we now face in America.
While the statistics below are surprising, they highlight the importance of developing a sound plan to anticipate and address common challenges faced when preparing for retirement.
How little most Americans have saved
One of the most troubling retirement statistics in America is how little most have earmarked toward this goal. The Employee Benefit Research Institute (EBRI) notes that nearly 46% of all American workers have less than $10,000 saved for retirement with 29% of all American workers having saved less than $1,000. For pre-retirees nearer retirement, U.S. Census Bureau statistics note that the average savings for a 50 year old is approximately $42,797.
The cumulative shortfall in national retirement savings is even more staggering. Boston College's Center for Retirement Research has estimated that American workers are a whopping $6.6 trillion short of what they need to retire comfortably. Since retirement planning is such a long-term goal, many pre-retirees end up procrastinating rather than taking action to achieve their goals. Time is your greatest resource and the earlier you address your goals, the better.
Pushing back the retirement date
With so little savings set aside for retirement it should come as no surprise that many pre-retirees are inevitably forced to push back or delay retirement all together. The problem is that more Americans are delaying retirement than ever before. In fact, in 1991, nearly half of all Americans planned to retire before they reached the age of 65. According the EBRI, that number has dropped to just 23 percent today with 74 percent of retirees planning to work well into retirement.
While working longer can be a part of the solution, many workers incorrectly assume that they will be able to work indefinitely. According to a recent survey of Baby Boomers by the American Association of Retired Persons, 40% of retirees plan to work "until they drop." Unfortunately, unexpected health issues can force workers into retirement earlier than expected. It is advisable for retirees to set a goal/target date to reach financial independence rather than rely on an assumption that they will be able to work indefinitely.
Retirees continue to battle debt in retirement
Transitioning into retirement free of any major liabilities is a goal shared by many retirees. However, a survey by CESI Debt Solutions notes that nearly 56 percent of American retirees still had outstanding debts when they retired. Additionally, the number of Americans between the ages of 65 and 74 filing for bankruptcy has increased nearly 178 percent since 1991. Bottom line – it is difficult to retire comfortably without having a plan to address outstanding debts.
Retirement population growing more than you think
The senior citizen population is growing exponentially. According to the U.S. Census Bureau, there are approximately 40 million or about 13 percent of the population over the age of 65. By 2030, it is estimated that the percentage of seniors will jump to 18 percent. By 2050, the number of senior citizens will double to almost 90 million. This explosive growth will inevitably place financial stress on the systems that help support our seniors.
Medicare, Medicaid and Social Security may experience significant strain in the future as our retired population continues to grow. With people living longer today, outliving savings is more of a concern than ever and is also important to have a plan to address longevity risk.
Retirement a concern for more Americans
More and more Americans are worrying about retirement today than ever before. A survey by Americans for Secure Retirement notes that 88% of all Americans are worried about "maintaining a comfortable standard of living in retirement." This is up from 73 percent in 2010. The survey also notes that nearly 80 percent of people ages 30-54 do not believe they will have enough money saved for retirement.
The good news is there is something that can be done about the retirement epidemic – plan. While it can be difficult to receive an honest assessment of your retirement readiness, developing your financial plan and re-visiting it each year may help improve your retirement trajectory. Consider leaning on independent professionals that can help provide a holistic, unbiased view of your retirement readiness. Retirement planning is complex and since everyone's situation is unique, consider speaking to your financial professional to determine the most appropriate approach for you.
Kurt J. Rossi, MBA is a Certified Financial Planner, Practitioner & Wealth Adviser. He can be reached for questions at 732-280-7550, kurt.rossi@Independentwm.com or www.Independentwm.com. LPL Financial Member FINRA/SIPC.