Nearly Half of all Americans Die Broke in Retirement!

by Krantcents · 40 comments

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Nearly half of Americans will be broke in retirement!  They will rely solely on Social Security to support themselves.   What if Social Security changes and how will you survive the changes?  How do you see your retirement?  Do you have enough savings for a comfortable retirement?  Will you live off of Social Security or keep working?  What will you do?

Whether you are twenty (20), thirty (30) , forty (40), fifty (50),  or even sixty (60) years old, you can do something.  If you are at the beginning of your career, you can start with as little as forty dollars a week.  That’s right as little as $2,000 a year can become a meaningful amount in forty  (40) years.  Using historical returns on investments (ROI) for the stock market over a 40 year period, you should have over a million dollars.  That’s right, you invested just $2,000 for six (6) years and never added a penny, you should have over a million dollars.  Time works very well when it comes to investing!

What do you do, if you missed out in your twenties?  Is it enough to double down?  Not really, but don’t let that stop you.  It will take more money because you are starting late.  Yes, starting to save for retirement in your early thirties is late, but don’t give up!   Savings targets are meaningless, if you cannot meet them.   By the time you are in your thirties, you are usually married,  have children and have a home.  I know it was difficult to save when you have student loans and other obligations, but it is not going to get easier.  As you earn more money, you find ways to spend more on your family, home and other expenses.

Your thirties are no different from any other decade!  You need to make savings a priority. What does that mean?  It means making savings more important than something else.  If you wanted to take a vacation, you would save your money to pay for it.  A little longer term would be saving for a down payment on a home.  It may take a few years to save for a down payment.  Whether the goal is less than a year or several years, you start to put away funds each month until you meet your goal.  Retirement savings are much longer term goals.

First you have to figure out how much you need to retire.  There are many retirement calculators to help you to do that.  It even helps you determine how much you need to contribute to your 401K , but it can not predict the rate of return.  You have to use average returns over time to approximate your growth factor.  The stock market has had an average return of 10% over a 100 year period.  How many of you will invest for 100 years?  Most of us will invest for far less!  More importantly, it depends when you start and when you need to withdraw funds.  Average returns are just that, an average of the returns over an extended period of time.

In order to accumulate $1,000,000 with an average return of 8%, you would need to contribute $126 per month for 50 years.  If you take off ten (10) years, your contribution increases to $286.  It dramatically increases as you have less time!  It goes from $670 (30 years), $1,698 (20 years) and $5,466  (10 years).  Will a million dollars make a comfortable retirement?  How much do you need?  A 4% withdrawal rate will provide $40,000 a year in income before taxes.  Is that enough?

What is your goal and how much can you contribute to achieve our goal?  The sooner you start, you can invest less each month and still achieve your your goal.  Sounds so simple and still more than half of all Americans do not save enough to have a comfortable retirement.  What prevents you from saving for retirement?  What can you do?

  • Make savings a priority
  • Figure out your retirement needs
  • Contribute to your 401k, IRA or Roth IRA
  • Learn about investing
  • Ask questions

Final Thoughts

You can never start too early to think about retirement!  What are your retirement needs?  You cannot reach a goal unless you are willing to identify it!  After you identify your retirement needs, you need to start saving sufficient contributions to reach your goal.  There are retirement calculators to help you figure that out.  What is your retirement strategy?  You cannot predict the returns, but you can start early to contribute to your retirement.  Time is the one element alone to help you achieve your goal.  Waiting is not an option.  What kind of retirement do you want?

Photo by:  Phillip Taylor

Carnivals:

Y and T’s Weekend Ramblings at Young and Thrifty
Carnival of MoneyPros at The Frugal Toad
Carnival of Retirement at Vanessa’s Money
Carnival of Financial Planning at One Cent At A Time
Yakezie Carnival at Savvy Scot
Carn. of Financial Camaraderie at My University Money

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{ 36 comments }

Money Beagle December 6, 2012 at 4:46 am

My biggest money regret is not taking retirement saving seriously enough in my early 20′s. I contributed but not really all that much. In fact at my first job, where I was only there a little more than a year, I had such a small balance that after I left, it was small enough that they just cashed me out. Even though it was a few hundred dollars, the financial guy that does our taxes chewed me out, and I realized later that it wasn’t as much about the amount of the money, it was that he didn’t want me to develop bad habits and miss out on retirement savings. After that, I started taking it more seriously and was more dedicated, but now I wish I had done even more.

Krantcents December 6, 2012 at 6:54 am

Unfortunately, you cannot make it up, but you can improve in your later years. Focus on what you can do in the future rather than regret what you didn’t do.

Grayson @ Debt Roundup December 6, 2012 at 8:21 am

I have the same regrets as Money Beagle. I didn’t contribute nearly as much in my 20′s because I thought it was a better investment to pay off my debt. While I feel good about it now, I am sure I will kick myself later. I should have used a half/half scenario where I paid into both.

Krantcents December 6, 2012 at 12:35 pm

In my 20′s there was no 401K! Life is choices, but don’t beat yourself about it. You can do more now.

Lance @ Money Life and More December 6, 2012 at 9:35 am

I contribute about 20% of my income to retirement and plan on increasing it a little bit each year as I am able. Best part another starting young is you don’t miss the money you never had!

Krantcents December 6, 2012 at 12:36 pm

The best part about starting young is you use “time” to grow your investments. Time covers mistakes and bad economic cycles.

Kathleen, Frugal Portland December 6, 2012 at 11:50 am

I’m really proud of myself — this year, I’m maxing out my IRA. I should not be this proud of myself. I’m 31 and this is the first year I’ve been able to do that.

Krantcents December 6, 2012 at 12:37 pm

I would look at it positively because you can’t change history.

Boris December 6, 2012 at 2:24 pm

I am pretty bad about saving money for my retirement. It’s one of those things that you know you should do but you don’t end up doing. Hopefully the more I read your blog the more it will convince me!

Krantcents December 6, 2012 at 2:55 pm

If you don’t save, you can expect to keep working! Is that enough motivaation?

Justin@TheFrugalPath December 6, 2012 at 7:13 pm

We started saving in my wife’s 401k when we were 25. It amounts to about 5% of our income and isn’t going to be enough to retire the way that we want to. In 2013 we’re going to put away as much as we can afford to. We’re 30 now so we’re not too far behind, but much further behind than what I want.

Krantcents December 6, 2012 at 7:55 pm

Good idea! Step it up as soon as you can because time is the most important factor.

Kim@Eyesonthedollar December 6, 2012 at 9:09 pm

My inlaws were forced into retirement by the loss of jobs. They have no savings and live off social security. That is a huge motivator to sock away as much as we can.

Krantcents December 7, 2012 at 7:00 am

Social Security is supposed to be a safety net, not really a retirement solution. It is a strong motivator to increase savings. My Mom was on Social Security, but it was her savings that that was needed to help her live to nearly 99 years old.

Holly@ClubThrifty December 7, 2012 at 9:28 am

It doesn’t surprise me at all that that many people die broke. I work in a mortuary and see it every day.

Knowing this is a great incentive for me to save as much as possible!

Krantcents December 7, 2012 at 1:10 pm

Motivation usually comes from some experience. For me, I saw my mother live very well in retirement and she lived to nearly 99 years old.

Pauline December 8, 2012 at 9:29 am

I never invested for retirement in a retirement account because I am aiming for early financial freedom. I bought some properties and other income producing assets instead. That $12K calculation is amazing, I did it over and over and can’t get over the power of compound interest.

Krantcents December 8, 2012 at 9:45 am

When I started investing there was no 401K or tax deferred savings. I was investing for financial freedom too. I started with income property building up a portfolio of apartment buildings and a shopping center that generated good cash flow. It worked out very well and I achieved my goal at 38 years old. Life is considerably different when you can chose what you do based on whether you enjoy it or not. I have been teaching for the last 12 years and really enjoy it most of the time.

Elizabeth @ Broke Professionals December 8, 2012 at 4:35 pm

In my 20s, both my husband and I got off to a good start – combined, we have about $30k in our retirement accounts. I’m only 30, he’s still 29, and this year has been our best ever – I already maxed out my 2012 Roth contributions!!

Krantcents December 9, 2012 at 9:42 am

Good for you! That early start will pay huge dividends later. Time does trump just about everything else.

Kevin @ Invest It Wisely December 8, 2012 at 8:19 pm

I currently pay 10% of my salary a month into the government pension plan (I’m self employed so paying both sides), but I don’t know if I’ll ever see any of that money so I consider the 10% as pure tax and make sure I’m saving some money aside from that, too. It’s not just a good idea for retirement but also for early retirement, starting your own business, and other ideas that you might want to execute on long before you turn 65, 67, or whatever the retirement age will be when you finally get there.

Krantcents December 9, 2012 at 9:46 am

Is that government program Social Security? When I started investing, there were no tax deferred savings (401k, IRA or Roth IRA). I had to rely on the actual investment. In my case it was income property. It turned out very well, but it motivated me to be more careful. I believe that I always need to look out for myself.

maria@moneyprinciple December 9, 2012 at 2:16 pm

Krant, as you know I have been thinking about all this lately; a lot. I can see the point in starting to think about retire early but at the same time, starting a pension plan at 12 is a bit ridiculous. For than matter, I think people should start concerning with retirement seriously (above and beyond the participation in a work scheme which is not enough today) in their forties; then the fifties is the decade of accelerated accumulation. And we should think beyond pension – we need income in our old age, not pension (being one of the financial instruments for income).

Krantcents December 9, 2012 at 4:27 pm

I strongly believe in multiple income streams, neither pensions or Social Security is enough. When I started investing there were no tax deferred savings for retirement or at least it was not company sponsored. I decided to invest in income property which I strongly advocate now as one form of additional income.

Darwin's Money December 9, 2012 at 2:21 pm

When you hear about someone “living on a fixed income”, it’s usually this type – completely reliant upon SS or other government assistance. Sometimes a pension too if they’re lucky. But this type of reliance upon a fixed income makes you a virtual slave in retirement. You have no choices, no flexibility. And if inflation hits hard or unanticipated expenses arise? It’s all downhill from there.

Krantcents December 9, 2012 at 4:30 pm

It is a strong argument for multiple income streams. I have retirement savings, Social Security, pension, brokerage accounts and modest side hustle. I will probably add to this mix at some point! I can always rent out my home because it will have a zero mortgage and the rental market is heating up.

Savvy Scot December 10, 2012 at 1:43 am

Great to see a post like this… hopefully it will be enough food for thought for other 20 or 30-somethings to pull the finger out!!

Krantcents December 10, 2012 at 6:45 am

In education, I present a lot of ideas and never know what works until later. I can only hope this may motivate someone to take action.

Miss T @ Prairie Eco-Thrifter December 10, 2012 at 6:47 am

I have to say I am not surprised by this. It is a sad reality that people don’t prepare more for the future. I know for us, we have a way to go until we retire but that doesn’t stop us from saving for it. Even though we have pensions and government programs to rely on we don’t want to have just those.

Krantcents December 10, 2012 at 9:17 am

Unfortunately, when you fail to plan, you plan to fail! I don’t think they understand the consequences or they want to work forever.

John S @ Frugal Rules December 10, 2012 at 10:39 am

It’s always saddening to see stats like this and see people think they can depend on Social Security when they retire. I have the same regret as already voiced by some, not saving enough in my 20′s. But, there’s nothing you can really do about the past but let it change how you view the future. These mistakes can be powerful lessons that can help you make better decisions for the future.

Krantcents December 10, 2012 at 2:06 pm

Very true! Better to start late than not at all.

Debt and the Girl December 10, 2012 at 3:02 pm

Hmmm. I would think that it would be more than half of the population that has anything stored for retirement. Its still a depressing statistic. I am in my 20′s now and saving what I can for retirement. Compound interest is def. your friend in this situation.

Krantcents December 10, 2012 at 3:28 pm

Very true! Time trumps almost everything. It can overcome a volatile market and investing mistakes.

Digital Personal Finance December 10, 2012 at 9:08 pm

Save early, and save often. One simply can’t replicate the grand opportunity of saving and investing when young, and letting compounding do its trick. However, it’s never to late to do everything you can to save for retirement.

The thing is, we can’t work forever. Some people think they can, but they won’t be able to due to health, ageism, or some other factor. Maybe they won’t even want to work. But being older and NEEDING to work to survive is something people should really try to avoid at all costs. Best to work toward degrees of freedom, and working by choice.

Krantcents December 11, 2012 at 7:00 am

I totally agree. You should only work if you want to vs. needing to support yourself. It is never too late to start.

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