Why It’s Harder to Save for Retirement Today Than 50 Years Ago

Yes it's harder, but you can still save more and prepare better.

Having enough money to retire comfortably is tougher now than it used to be — at least that’s what many Americans think. A survey by the Transamerica Center for Retirement Studies found that nearly 80 percent of workers believe they will have a harder time achieving financial security in retirement than their parents’ generation.

In fact, a GOBankingRates survey found that Americans’ biggest financial fear is never being able to retire. Is it because the deck is stacked against people saving for retirement today?

There actually are several reasons why it’s harder to have enough money to retire today compared to 50 years ago. Here’s why Americans now struggle to build a large enough nest egg on their own.

Most Workers Won’t Get a Pension

If you were working 50 years ago and your employer offered a retirement plan, it likely was a pension, says David John, senior strategic policy adviser with the AARP Public Policy Institute. “That basically required the employee to do nothing,” he said. When you retired, you got a fixed payout based on your salary and how long you worked.

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Pension plans are no longer commonplace, which is the biggest reason it’s harder now for employees to have enough money for retirement, John says. Only 20 percent of Fortune 500 companies still offered a pension or defined benefit plan to new hires in 2015 compared with 59 percent in 1998, according to advisory firm Willis Towers Watson. Although most state and local government employees participate in pension plans, payouts might be at risk in states burdened with debt and underfunded pension plans.

As a result, fewer workers are entering retirement with a guaranteed source of income other than Social Security. But even the future of Social Security is uncertain because of funding shortfalls, which could lead to benefit cuts in a worst-case scenario.

Start Planning: Is an AARP Membership Still Worth It?

Americans Are Having a Hard Time Saving

Defined contribution plans such as 401ks are now more common and require workers, as the name suggests, to contribute their own money to retirement savings. But Americans aren’t doing a good job of saving on their own for a variety of reasons.

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For one thing, some people are confused by their retirement investment options. “We have a lot of people who believe this is a big decision and if they make the wrong choices, they’ll end up regretting it,” John said. “People don’t want to do the wrong thing, so they end up doing nothing at all.”

Workers might also find it hard to set aside money in savings because of stagnating wages and rising living costs. The Harvard Business Review reports that average hourly inflation-adjusted wages have risen just 0.2 percent per year since the early 1970s. Over that same period, consumer prices typically have risen 2 percent or more annually, according to the Bureau of Labor Statistics.

However, there’s an even bigger reason Americans are having a hard time saving for retirement: Half of the workforce doesn’t have a retirement savings plan at work, John said, so they’re entirely on their own.

Opening your own retirement savings account such as an IRA can be confusing, John said. Those who find it complicated typically do nothing at all. “In that case, they save too late, they don’t save enough or they invest in the wrong things,” he said.

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Survey: More Than Half of Americans Will Retire Broke

Paying Off Debt and Saving Are Competing Priorities

Higher levels of debt make it harder for people to save for retirement, said Catherine Collinson, president of Transamerica Center for Retirement Studies. In fact, a recent Transamerica survey found that a higher percentage of workers cite paying off debt as more of a priority than saving for retirement.

There are plenty of reasons Americans are deeper in debt now than 50 years ago. For one thing, access to easy credit “is much more prevalent than it was 50 years ago,” Collinson said. According to the latest figures from the Federal Reserve, Americans now have more than $1 trillion in revolving credit — primarily credit card debt — compared with $1.3 billion in January 1968.

Americans also owe more than $1.3 trillion in student loans, which is two-and-a-half times more than what they owed just a decade ago, according to the Pew Research Center. Meanwhile, baby boomers who have reached retirement age are more likely to have mortgage debt than homeowners entering retirement in 2000, according to mortgage loan company Fannie Mae.

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For those with debt, it can be hard to find room in the budget to save. But the cycle of inadequate savings and debt is compounded when people raid what money they do have in their retirement accounts to pay for debt, Collinson says. “It’s completely counterproductive to save for retirement, only to take an early withdrawal,” she said.

Learn More: 10 IRA Withdrawal Rules You Need to Know

People Are Living Longer

It’s also harder for people to save for retirement now because they’re living longer. The average life expectancy in the U.S. climbed from 69.77 in 1960 to 78.74 in 2015, according to the World Bank.

You are likely to live even longer once you reach certain milestones. For example, if you’re 65 today, you have a one in four chance of living past age 90, according to the Social Security Administration.

People are in retirement 30 or 40 years now, which is a lot longer than before,” said Chris Miller, an investment advisor at Safeguard Investment Advisory Group. That means nest eggs need to be bigger to last longer. However, many people are underestimating how long they’ll live in retirement and aren’t saving enough, Miller said.

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Find Out: This is How Much You Need to Survive Retirement in Your State

Healthcare Costs Are Rising

People also need more money in retirement now than in the past for healthcare costs. One reason is that retiree healthcare benefits provided by employers aren’t as prevalent now as 50 years ago, Collinson said, so retirees must cover more health costs on their own.

At the same time, healthcare costs keep rising — especially for retirees. For example, the average amount a 65-year-old couple who retired in 2016 would need to cover medical expenses in retirement was $260,000, according to Fidelity Investments. But a couple retiring in 2017 would need an average of $275,000, an increase of $15,000 over just one year. It pays to learn the retirement survival strategies for rising healthcare costs.

Long-Term Care Needs Are Increasing

The Fidelity healthcare cost estimates for retirees don’t include long-term care expenses. The increased need for long-term care — because people are living longer — is another reason it’s harder to save for retirement now, Collinson said.

“A couple of years ago, [Transamerica] did a survey of retirees and we found that many retirees financially say they’re living well, but looking at the savings they reported, many are potentially one financial shock away from bankruptcy,” she said. “Long-term care could very well be that shock.”

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The annual cost of an assisted living facility is $45,000, and the annual cost of a private room in a nursing home is $97,455, according to the Genworth 2017 Cost of Care Survey. About half of people turning 65 will need long-term care at some point in their lives, according to the U.S. Department of Human Services. However, less than one-third of Americans 50 and older have begun saving for long-term care.

Find Out: Why Most Baby Boomers Won’t Be Able to Retire

How to Save More and Prepare Better for Retirement

“The way you succeed in retirement savings is by saving early and often so you end up earning interest on interest on interest,” John said. Even small amounts saved can grow into a large nest egg. If you didn’t start saving early, though, that doesn’t mean you can’t do anything now.

Use a digital retirement coach. Most workers haven’t figured out how much they need to save for retirement. AceYourRetirement.org is a tool built by AARP and the Ad Council to help people planning for retirement ask the right questions and plan for the future. Take the quiz and learn how to jump start your retirement planning.

Take advantage of workplace retirement planning services. Many employers now offer free financial education and retirement planning information through their workplace retirement plans. “Yet very few employees who have access take advantage,” Collinson said. Taking advantage of this service can help you better prepare for retirement. Learn the 15 big 401k questions to ask your employer.

Tackle debt. Focus on paying off what you owe as quickly as possible so you don’t carry debt into retirement. To avoid racking up more debt — which will make it harder to save for retirement — Collinson recommended paying more attention to how you spend money on a daily basis. “Get in the habit of only spending as needed,” she said. Learn the 5 debts you need to tackle before you retire.

Prepare for long-term care costs. A long-term-care insurance policy can help offset the cost of care. Another option is a life insurance policy with a long-term care benefit you can tap if necessary, Miller said. If you don’t end up needing money for long-term care, your loved ones can still receive a payout from your life insurance policy when you die. Learn how to avoid going broke paying for long-term care during retirement.

Take steps to be able to work longer. “One of the easiest ways to make your retirement money last is to work longer than you initially planned to,” John said. However, you need to take steps now to be able to do that. Collinson recommends taking advantage of any training programs your company might offer, or using your employer’s educational reimbursement benefit to take classes and learn new skills. Learn the best part-time jobs with flexible hours for retirees.

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About the Author

Cameron Huddleston

Cameron Huddleston is an award-winning journalist with more than 18 years of experience writing about personal finance. Her work has appeared in Kiplinger’s Personal Finance, Business Insider, Chicago Tribune, Fortune, MSN, USA Today and many more print and online publications. She also is the author of Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances.

U.S. News & World Report named her one of the top personal finance experts to follow on Twitter, and AOL Daily Finance named her one of the top 20 personal finance influencers to follow on Twitter. She has appeared on CNBC, CNN, MSNBC and “Fox & Friends” and has been a guest on ABC News Radio, Wall Street Journal Radio, NPR, WTOP in Washington, D.C., KGO in San Francisco and other personal finance radio shows nationwide. She also has been interviewed and quoted as an expert in The New York Times, Chicago Tribune, Forbes, MarketWatch and more.

She has an MA in economic journalism from American University and BA in journalism and Russian studies from Washington & Lee University.

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