You’ve likely heard that, due to meager retirement savings, many working Americans will have to delay retirement. Unfortunately, according to a study by the Employee Benefits and Research Institute (EBRI), deferring retirement by a few years won’t be enough to ensure even a bare-bones retirement for millions of older Americans.
In fact, the study found that:
…the lowest-earning 25 percent of Americans would have to work until age 84 so that 90 percent of them would have even a 50-50 chance of having enough money to afford basic living expenses and out-of-pocket medical care.
That’s a lot of percentages, but the upshot is that even if they work until age 84, the majority of those in the lowest income quartile will only have a coin flip chance of having enough money to make it to the end. Obviously, if you require a higher likelihood of having enough money, then you significantly decrease the fraction of households that will achieve “income adequacy.”
For example, if we require a 70% likelihood, then just 40% of households in the lowest quartile will attain “income adequacy” by deferring retirement to age 84. And by changing to an 80% likelihood, that number drops to 1 in 7. Of course, when we’re talking about the lowest quartile, we’re talking about those earning $11, 700 or less, so it’s perhaps not surprising that they’ll have trouble making ends meet.
At the other end of the spectrum, however, only 76% of those in the highest income quartile are expected to achieve the 70% likelihood of income adequacy if they retire at the traditional age of 65. This number falls to 61% if we increase the likelihood to 80%. Not pretty.
Of course, these numbers are based on averages, so the key here is to strive to be well above average. Don’t wait until the last minute. Instead, pay off your debts, start investing as early as possible, cut out unnecessary spending, and so forth. You should be taking advantage of any and all retirement accounts that are available to you. If you’re not able to max them out, consider finding ways to earn extra money.
If you are working till 84 — I would not call it “retiring” at that point. Call it: “working till you die”.
The main takeaway might be… don’t be in the bottom 25%. It’s not gonna be pretty when we go out another generation and there aren’t enough young workers to help cover the expenses of the aging (and longer living) elderly population. Earn now, save now so you can live out a respectable retirement!
Don’t feel bad about watching the ones that did it wrong so you can do it right. Learning from examples you have to look both ways. There is always someone that made some better decisions and others that didn’t. When you can tell the difference you are on your way. My parents have reinvested everything they have into their business and it has grown very well. Not every business decision has been perfect but they never are. Other members of my family have always lived on just a little more than their income no matter how much they make. They make purchases based on the payment and not the cost.
I am constantly reminded of this when I look at my grandparents. Each one of them worked for the same company for over 40 YEARS! They then retired, and live off of social security. My grandfather has a small pension, but between the two of them they don’t bring in more than $2000 per month. I know that if they had invested their earnings they could have retired comfortably. Now all they do is complain about not having any money, and how “Uncle Sam” takes all their money. As sad as it is, it gives me good motivation to save my money for the future!