Retirement Crisis: How Older Americans Can Turn This Around
As many as 56 million private sector workers lack access to retirement savings plans through their employer, according to a recent Pew Charitable Trusts study. In addition, many Americans with retirement plans also fail to save enough due to financial and inflationary pressures. In turn, many of them might have difficulty having a comfortable standard of living in their golden years.
According to the Pew study, households with people at least age 65 with less than $75,000 in annual income — a level that indicates financial vulnerability, according to the analysis — will increase to 32.6 million from 22.8 million (+43%) in 2040.
“And as these workers age, inadequate retirement savings will likely lead to reduced retirement income and quality of life for many. At the same time, this shortfall will put greater pressure on public spending and increase taxpayer burdens,” Pew noted.
The solution — saving more money — while obvious, is not easily feasible for many. Yet, as Pew added, even small savings over a worker’s career could help offset the effects of this shortfall. For example, Pew explained that saving an additional $1,685 a year ($140 a month) over a 30-year period could help close the retirement savings gap and assist seniors in maintaining their lifestyles in retirement.
One way to do this is via automated savings programs designed to help workers save for retirement, which are also known as auto-IRAs, work and save, and secure choice, according to Pew. “These programs allow small businesses to recruit and retain workers by offering a no-cost retirement benefit,” Pew noted. “And when workers are more financially secure, they are less reliant on taxpayer-funded government programs, better able to withstand financial shocks, and more likely to save for their future.”
There are already 11 states with such programs, including California, Colorado, Connecticut, Delaware, Illinois, Maryland, Maine, New York, New Jersey, Oregon, and Virginia, and workers at companies without employer-based benefits are enrolled automatically but can opt out, Pew noted.
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As for Americans with retirement plans who feel behind in their savings, there are a few steps they can take.
According to a recent Edward Jones study, the lifetime cost of retirement averages almost a million dollars, while the median retirement savings — among the 51% who have accounts — is only $164,000 for those age 65-74 and $134,000 for those age 55-64. For many, this will be insufficient to supplement Social Security and other retirement income and enable a comfortable retirement.
A good first step is to get a clear understanding of what will make you happy in retirement, said Lena Haas, principal, head of wealth management advice and solutions at Edward Jones. The next step is to access your full financial picture — your assets, liabilities, income and expenses, she added.
“Your current spending can also serve as a starting point for estimating your spending in retirement, although you’ll likely need to make some adjustments. For example, your housing costs will decrease once you pay off your mortgage, but your health care costs probably will increase as you age,” added Haas.
Another tip is that workers ages 50 and older have a higher annual 401(k) contribution limit than their younger peers, which will allow you to contribute more for retirement by speeding up your savings with the same tax advantages — either now or in the next few years, Haas added.
“This year, the catch-up contribution increases to $7,500, meaning that those eligible can contribute a maximum of $30,000 to their 401(k), $7,500 more than their younger peers. There are similar benefits for IRA catch-up contributions that a financial advisor can explore with you,” Haas explained. “A successful retirement requires ongoing adaptability, strong resilience and willingness to make course corrections.”
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