5 Top Reasons Retirees Report Having No Savings — And What To Do About It
Written by
Jennifer Taylor
Edited by
Zuri Anderson
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Instead of enjoying their golden years, many retirees are plagued by money woes. If you’re in this situation, you’re not alone.
“Many retirees didn’t anticipate longer life expectancies, rising healthcare costs and inflation, leading to financial shortfalls,” said Melissa Murphy Pavone, certified financial planner (CFP), certified divorce financial analyst (CDFA) and founder at Mindful Financial Partners.
If you have little to no savings, she suggested adjusting your living expenses and seeking guidance from a financial planner.
“For retirees with little or no savings, the key is to act now,” she said. “Whether that means cutting expenses, finding new income sources or maximizing benefits.”
In total, more than one in four retirees have no retirement savings, according to a recent Clover survey. Here’s a look at the five most common reasons cited for being in this position, and what to do about it.
Living Paycheck to Paycheck: 56%
When young people are just getting started with money, it’s not uncommon for them to live paycheck to paycheck, said Anthony Saccaro, chartered financial consultant (ChFC), J.D., Esq., president at Providence Financial and Insurance Services.
However, he said some people get stuck in this cycle due to factors such as living in a culture that normalizes taking on debt for instant gratification.
“Credit card debt is at an all-time high,” Saccaro said. “If you’re making credit card payments, life costs about 20% more because of interest.”
He said lifestyle creep is another common reason people get stuck in this cycle.
“Every time they get a raise, instead of saving, they upgrade their lifestyle,” Saccaro added. “It’s the same instant gratification cycle — wanting things they can’t really afford now and paying for it later in retirement.”
Not Earning Enough To Save for Retirement: 46%
“Most people don’t struggle to save for retirement because they don’t make enough,” Saccaro said. “It’s usually a spending issue.”
He said feeling entitled to live a certain lifestyle — even if they can’t afford it — wrecks their financial future.
“I know a waiter who worked in the same restaurant for over 40 years,” Saccaro recounted. “He never made more than a waiter’s salary, yet he managed to save over $2 million.”
However, he said he has a close friend who earns $150,000 per year, has previously declared bankruptcy and still struggles financially.
The difference all comes down to spending habits, according to the expert.
Not Realizing How Much Money They Would Need in Retirement: 37%
People often underestimate the amount of money they’ll need in retirement, Saccaro said.
“Prices will keep rising due to inflation, and most retirees still want to enjoy life,” he said. “Especially doing things they didn’t have time for before, like traveling — which isn’t cheap.”
Saccaro said retirement savings is about ensuring you have a steady income for life, not just hitting a certain savings goal.
“The key to a successful retirement is making sure your income lasts, while factoring in inflation,” he noted. “Just like when you were working, financial discipline is still crucial.”
Having Poor Savings Habits While Employed: 36%
“The way most Americans save is pretty bad — especially among the self-employed, who often struggle just to set aside money for taxes,” Saccaro said.
He said many workers who are eligible for a 401(k) don’t participate, meaning they’re missing out on free money if offered an employer match.
“For example, in my companies, if an employee saves 5% of their salary, we immediately contribute 4%,” Saccaro explained. “That’s an 80% return on their money from day one.”
Another mistake people commonly make is failing to think about taxes, he added.
“Many people default to traditional 401(k) [plans], which defer taxes now, but can lead to a big tax hit in retirement,” Saccaro said. “It’s better to diversify between traditional and Roth accounts to allow for tax-free growth and better control over taxes later.”
Having To Pay for Unexpected Expenses: 31%
Unplanned expenses are guaranteed to happen in retirement, so they need to be included in your budget, Saccaro said.
“In reality, most ‘unexpected’ expenses are pretty predictable,” he said. “You don’t know exactly what will go wrong, but you do know something will — a water heater breaking, a car repair, a medical bill.”
Prioritizing spending over saving can help ensure these expenses don’t derail your retirement, Saccaro concluded.
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