Life Without Retirement Savings Looks Like

The Truth News — Tue, 09 Apr 2024 09:10:39 +0000

This Is What Life Without Retirement Savings Looks Like

Many seniors are stuck with lives of never-ending work—a fate that could befall millions in the coming decades.

CORONA, Calif.—Roberta Gordon never thought she’d still be alive at age 76. She definitely didn’t think she’d still be working. But every Saturday, she goes down to the local grocery store and hands out samples, earning $50 a day, because she needs the money.

“I’m a working woman again,” she told me, in the common room of the senior apartment complex where she now lives, here in California’s Inland Empire. Gordon has worked dozens of odd jobs throughout her life—as a house cleaner, a home health aide, a telemarketer, a librarian, a fundraiser—but at many times in her life, she didn’t have a steady job that paid into Social Security. She didn’t receive a pension. And she definitely wasn’t making enough to put aside money for retirement.

So now, at 76, she earns $915 a month through Social Security and through Supplemental Security Income, or SSI, a program for low-income seniors. Her rent, which she has had to cover solo since her roommate died in August, is $1,040 a month. She’s been taking on credit-card debt to cover the gap, and to pay for utilities, food, and other essentials. She often goes to a church food bank for supplies.

More and more older people are finding themselves in a similar situation as Baby Boomers reach retirement age without enough savings and as housing costs and medical expenses rise; for instance, a woman in her 80s is paying on average $8,400 in out-of-pocket medical expenses each year, even if she’s covered by Medicare. Many people reaching retirement age don’t have the pensions that lots of workers in previous generations did, and often have not put enough money into their 401(k)s to live off of; the median savings in a 401(k) plan for people aged 55 to 64 is currently just $15,000, according to the National Institute on Retirement Security, a nonprofit. Other workers did not have access to a retirement plan through their employer.

That means that as people reach their mid-60s, they have to either dramatically curtail their spending or keep working to survive. “This will be the first time that we have a lot of people who find themselves downwardly mobile as they grow older,” Diane Oakley, the executive director of the National Institute on Retirement Security, told me. “They’re going to go from being near-poor to poor.”

The problem is growing as more Baby Boomers reach retirement age—8,000 to 10,000 Americans turn 65 every day, according to Kevin Prindiville, the executive director of Justice in Aging, a nonprofit that addresses senior poverty. Older Americans were the only demographic for whom poverty rates increased in a statistically significant way from 2015 to 2016, according to Census Bureau data. While poverty fell among people 18 and under and people 18 to 64 from 2015 to 2016, it rose to 14.5 percent for people over 65, according to the Census Bureau’s Supplemental Poverty Measure, which is considered a more accurate measure of poverty because it takes into account health-care costs and other big expenses. “In the early decades of our work, we were serving communities that had been poor when they were younger,” Prindiville told me. “Increasingly, we’re seeing folks who are becoming poor for the first time in old age.” source

How to retire with no savings

Life can be full of curveballs, which can force your long-term financial goals, like retirement savings, to take a backseat. If this sounds like you, you’re not alone. In fact, Thrivent’s Retirement Readiness Survey found that nearly 44% of near-retirees have executed minimal to no retirement planning, leaving their golden years at risk. So, what happens if you have no retirement savings?

We’ll explore how you can retire even without savings to rely on. We’ll also provide a few immediate actions to start saving, even if it’s later than you intended.

What happens if you have no retirement savings?

You can still live a fulfilling life as a retiree with little to no savings. It just may look different than you originally planned. With a little pre-planning, relying on Social Security income and making lifestyle modifications—you may be able to meet your retirement needs. Let’s dive deeper into these options.

You may have to rely on Social Security

Many retirees with little to no savings rely solely on Social Security as their main source of income. You can claim Social Security benefits as early as age 62, but your benefit amount will depend on when you start filing for the benefit. You get less than your full benefit if you file before your full retirement age. Every month you delay filing after full retirement age, you receive a credit that increases your benefit.

The average Social Security benefit in late 2023 was $1,710 per month. That’s less than $22,000 annually. High earners may receive more, but on average, Social Security still covers only 30% of their prior earnings.

Knowing how much to expect from your monthly Social Security benefit can give you a clearer idea of if you can live on this amount. The Social Security Administration provides calculators to help you determine your amount.

Retirement Without Savings: What Are Your Options?

It may not be ideal, but it’s the difficult reality for many Americans

According to the 2023 Northwestern Mutual Planning & Progress study, Americans report having less than $90,000 on average in retirement savings.1 Individual retirement accounts (IRAs) and 401(k) savings plans strive to compensate for the lack of traditional pension plans, however, many Americans have not been able to take advantage of these or cannot afford to save enough for retirement.2

KEY TAKEAWAYS

Leaving the workplace at age 65 may mean funding over 20 years of retirement.
Retirees often scale back their lifestyle or downsize to supplement retirement.
Those without adequate retirement funds may need to continue to work past retirement age.

Funding Retirement

Retirement means the end of a steady income, which is why having a nest egg is important. Some financial experts say retirees need up to 80% of their pre-retirement income once they stop working.3 An annual income of $100,000 means $80,000 will be needed each year to maintain an individual’s lifestyle. Without savings or a pension plan, retirees need to either continue earning money or cut back on their spending.

For those who enter retirement without saved cash, their only source of income is commonly Social Security. Most individuals aged 65 and older receive the majority of their income from Social Security and without the benefits, 38.7% of these adults may fall below the official poverty line.4

Historically, many workers relied on corporate pension plans to fund their retirements but those plans have decreased in the past decades.5 Some government jobs still have pensions, however, those jobs may not have had Social Security taxes withheld, and decrease the retiree’s Social Security benefit.6

Relying on Social Security

With the average monthly Social Security retirement benefit check at $1,907 in 2024, it can be a big shock to those who earned more while working.7 On average, Social Security replaces just 40% of a retiree’s pre-retirement earnings.8 Although there are ways to maximize it, Social Security still functions best as an adjunct to personal savings.

When considering healthcare costs like Medicare premiums, food and housing, personal debt, and other financial obligations many retirees carry, it’s clear why living solely on Social Security may not work.

Downsize

Without savings, it will be difficult to maintain the same lifestyle an individual had in working years. Some retirees make adjustments by:

Moving into a smaller home or apartment
Reducing television or streaming services
Cancelling gym memberships
Driving a less expensive car

Continue to Work

To keep up with basic expenses in retirement, many need an extra income stream. This could mean going back to work or getting a part-time job. The Internet makes it easier than ever for retirees to work remotely. According to AARP, retirees who work part-time, freelance, or do consulting work tend to increase their retirement satisfaction by providing a sense of purpose and community.

How Can Individuals Save More Toward Retirement?

How and where workers save can be as important as how much they save. Financial vehicles behave differently and are taxed differently so exploring diversification can help minimize the impact of taxes, market volatility, and inflation.1

What Is the Average Retirement Age in the United States?

In 2023, the average age for men to retire was 65 and the average age for women to retire was 63.11

The Bottom Line

Retiring without savings requires sacrifices and strategies. Social Security may not provide enough money for most people to maintain their pre-retirement lifestyles. For some, downsizing or working part-time can provide a supplement to Social Security. source

Filing status	2024 modified adjusted gross income (MAGI) to contribute to a Roth IRA
Single or head of household	$146,000-$161,000
Married filing jointly	$230,00-$240,000
Married filing separately	$0-$10,000

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Life Without Retirement Savings Looks Like

This Is What Life Without Retirement Savings Looks Like

Retirement Without Savings: What Are Your Options?

KEY TAKEAWAYS

Funding Retirement

Relying on Social Security

Downsize

Continue to Work

How Can Individuals Save More Toward Retirement?

How to start saving for retirement if you’re starting late

Know your savings gap

Maximize retirement account contributions

Take advantage of tax-advantaged retirement plans

Open a traditional or Roth IRA

Traditional IRA

Roth IRA

Explore other investments

Get professional guidance with your retirement plan

What Is the Average Retirement Age in the United States?

The Bottom Line