Nearly all Americans share a common goal: to reach the retirement finish line on their own terms. That means retiring at a time of their choosing, and with enough money to last them comfortably throughout their retirement.
However, the retirement landscape today looks nothing like it did even a few decades ago. More people than ever are entering retirement with insufficient savings, meaning the dream of a timely and comfortable retirement is being tossed by the wayside.
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Seniors' retirement dreams are being dashed
We certainly don't have to look very far to understand what sort of challenges today's seniors are facing. For instance, according to May data from the St. Louis Federal Reserve, the personal saving rate rose to an eight-month high of 5.5%. However, this is less than half of what it was 50 years ago (11.9%), and it's well below the recommended 10% to 15% of your monthly income that financial advisors recommend workers sock away for emergencies and their retirement.
Social Security is another cause for concern. Though the program has been paying out benefits for more than 75 years, and it'll continue to do so for many generations of workers to come, it's facing a massive budgetary cash shortfall that could result in a benefits cut of up to 21% by the year 2034, according to estimates from the Social Security Board of Trustees' 2016 report. Roughly three out of five seniors already relies on Social Security to account for at least half of their monthly income, so a benefits cut could be a devastating blow.
Certain costs for seniors are also pushing higher at a rate that's much faster than wage growth, or the annual cost-of-living adjustment (COLA) they receive from Social Security. Medical care inflation, as an example, has risen at a quicker pace than Social Security's COLA in 33 of the past 35 years. In other words, what income seniors are generating from Social Security is potentially being eaten up by private medical costs and Medicare expenses (once you turn 65).
Some baby boomers nearing retirement age have also been punished twice. First, their investments were hit by the Great Recession, which saw the broad-based S&P 500 lose more than 55% of its value. Then, some of these individuals watched the S&P 500 rally for eight years to a new all-time, all while they remained on the sidelines, too worried to reinvest their capital in stocks.
One chart that sums up seniors' retirement struggles
But if you knew none of the above struggles, the following chart tells you everything you need to know about seniors' current retirement woes.
As the chart from the St. Louis Federal Reserve shows, employment levels for those aged 55 and up have exploded over the past two decades. In June 1997, 15.94 million seniors aged 55 and up were employed. As of May 2017, 35.17 million seniors of the same age range were employed -- a 121% increase. After nearly three decades of practically flat senior employment levels (the late 1960s through late 1990s), things began to shift dramatically within the past two decades, and they haven't changed since.
Some of this shift could very well be due to the aging of baby boomers. It was widely expected that, with the normal retirement age lying between 62 and 65, we would see an increase in senior employment in the workforce as boomers aged. However, it can also be strongly argued that aging baby boomers aren't solely responsible for this trend. The trend you see is probaby derived from a lack of adequate retirement savings and the need to work longer for seniors to meet their month-to-month expenses.
Just how bad are things for seniors? According to a recently released GoBankingRates study, boomers aged 55 to 64 were the most likely to be living paycheck to paycheck at 53%, while a still subpar 44% of seniors aged 65 and up admitted to living paycheck to paycheck.
What seniors can do today to ease their retirement struggles
Working longer than the normal retirement age is an option for some seniors, assuming they're healthy enough to do so. However, it's far from the only thing seniors can do to improve their retirement outlook.
One of the smartest moves to make is creating a budget. A 2013 Gallup poll found that a meager 32% of American households was working with a detailed monthly budget, which simply won't do. If you don't have a good grip on your cash flow, then it's practically impossible to reduce your spending or boost your saving in an efficient manner.
But budgeting takes on even more importance for seniors. For many, retiring means giving up their working wage and accepting annual income from a pension, retirement account, or Social Security that can be notably lower each month. Recently retired seniors can often face a sort of sticker shock at how quickly their monthly income drops off, and without a retirement budget they could risk burning through their nest egg at a quick pace.
Here's the good news: Budgeting software can take care of most of the grunt work of creating a budget these days. If you know your expenses and how much you want to save each month, budgeting software can help you formulate a plan that, if you stick to it, can help keep your spending on track during retirement.
Seniors with inadequate savings should also do their best to hold off on claiming Social Security for as long as possible. Though it might be alluring to boost your monthly income by claiming as early as possible (age 62), you'd be doing yourself a disservice by permanently reducing your monthly take-home by up to 25% to 30%, depending on your birth year. Instead, seniors with little in savings for retirement should approach Social Security by waiting as long as possible to make their claim. This way their benefit can grow by 8% per year up until age 70, if they choose.
Lastly, seniors should take extra time to examine their medical care choices during retirement. For example, seniors have a choice between traditional Medicare and Medicare Advantage, and they should examine which plan offers the best coverage for you for the price (note, I didn't say cheapest plan). Medicare Advantage plans have become increasingly popular over the past decade, since they offer maximum out-of-pocket annual costs for traditional Part A (hospital insurance) and Part B (outpatient services) expenses associated with Medicare. Even within Medicare, purchasing Medigap coverage, which is added insurance seniors can purchase to reduce their out-of-pocket expenses when care is rendered, could be a smart move.
It's no secret that seniors have a challenging road ahead, but all hope isn't lost. Be proactive and take steps to shore up your financial future today.
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