Retirement

Calling All Americans: A Retirement Reality

Saving for retirement is something everyone should be doing, but are they?

Nearly half of American households do not save a penny of their annual income.1 This means that not only are they unprepared for a “rainy day,” they are also unprepared for the years they may be physically or mentally unable to work and provide income for themselves, their spouses, or their families.

For those that do save, the outlook is bleak. According to the U.S. Census Bureau, the (median) average net worth, not including home equity, for Americans 35-44 is at $14,226, and for ages 55-64, is $45,447. With a net worth of this size, saving for small expenses can be tough, and saving for retirement is nearly impossible.

Relying on Social Security

Many Americans may believe that their Social Security Benefits will help float them through their retirement years, and for some this may be feasible. But for many, including the younger generations, Social Security just won’t add up.

Due to the fact that people are living longer and the birth rate is low, the Social Security Administration estimates that “based on current law, in 2041, the Trust Funds will be depleted,” however they do believe the program will provide enough funds through taxes to pay a reduced benefit of “$780 for every $1,000 in benefits scheduled.”2 No matter how the math is done, the numbers just won’t provide what is needed.

Social Security wasn’t established to support retirees, it was established as a “comprehensive social insurance system covering all major personal economic hazards with special emphasis on unemployment and old age insurance,” according to the Social Security Administration.3 In other words, Social Security was never meant to be an individual’s sole source of income.

The reality is that many American’s will be relying on Social Security as their only source of income during retirement, leaving them vulnerable to a catastrophic financial situation if they encounter a “major personal economic hazard.” As a result, many Americans will find themselves either leaning on family for financial assistance, or working well into their retirement years

Health Care in Retirement

In a 2015 study of Baby Boomer’s Retirement Readiness by the Insured Retirement Institute, 28% of baby boomers have the expectation they will have to wait until after 70 to retire and leave the workforce completely. To supplement, many retirees will continue working through their retirement years, either full or part-time.

In addition, the retirement reality brings about many other questions, including health care costs. For the financially prepared Americans who have properly saved for retirement, covering health care costs during retirement will come with ease, but for those who are unprepared, a major medical issue could leave them in financial ruin.

Consider this number –­ $240. This is the national (median) daily rate of nursing home care for a private room.4 If unable to care for themselves, or rely on family to help, how will an American with a net worth of $45,447 pay over $87,000 a year for nursing home care?

While there is the option of government funded programs such as Medicare and Medicaid to help supplement health care and long-term care costs, like Social Security, it isn’t meant to be the sole source of financial coverage.

How do you prepare?

Start saving young, take advantage of your employer-sponsored savings vehicles such as a 401(k), create a budget and make smart choices with your money. If you are quickly approaching retirement and are unsure if you are ready, assess the risks that can derail your retirement plan and look at ways to catch up on retirement savings.

The numbers may look hopeless, but there are always answers. Talk to a financial professional who has the knowledge and tools to help you look at where you are now and what it will take to get you to where you want to be.

 

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Written by: Alexsa Young, Contributor to BCJInsights.com

Citations.

1 – disabilitycanhappen.org [12/3/15]

2 – What young workers should know about Social Security and saving. Social Security Administration. ssa.gov/newsletter/Statement Insert 25+.pdf [12/3/15]

3 – SSA Brief Narrative Organizational History. Social Security Administration. ssa.gov/history/orghist.html [12/3/15]

4 – Genworth 2014 Cost of Care Survey [12/3/15]

BCJ FG 15-108

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