Most people in the US worry about retirement. Once they are no longer actively employed, making ends meet may not be easy. Americans spend significantly more on healthcare, so it would be reasonable to assume that most would plan accordingly. However, that is not the case.
Here are five disturbing facts about retirement savings in the US.
1. Retirement Stretches Longer Than Expected
The Centers for Disease Control and Prevention saw a decline in the life expectancy of Americans in 2022. Women, on average, last longer (79.3 years) than men (73.5 years), but this is slightly less than in 2020. That might indicate that retirement is also shorter.
However, the population of people who die young skew the average. People who reach 65 have a 50 percent chance of living about 20 more years. Retirees relying on conservative stock portfolios to sustain them may run out of money because of inflation. It would be advisable to diversify a retirement portfolio with different asset types to prevent that.
2. Social Security Is Not Enough
The US median annual household income was $74,580 in 2022. The good news is retirees can expect a little more in the Social Security checks starting in January 2024. The bad news is that this translates to an average of $1,907 monthly or $22,884 annually. Relying on Social Security payments is not enough for most retirees’ daily needs, let alone unexpected expenses.
Americans should put money in an individual retirement account (IRA) or 401(k) plan as early as possible. If you haven’t yet, maximize your 401(k) contributions, especially if your employer matches them.
The same applies to your tax-advantaged IRA, which has a maximum contribution of $7,500 in 2023 if you are over 50. That increases to $8,000 in 2024.
With compounded interest over decades, you should accumulate enough to ride out market volatility. It is easy enough to open an IRA online, so there is no excuse to delay it.
3. It Might Be Too Late for Some
Financial advisors often stress the importance of retirement planning as early as possible. However, many people delay putting aside savings because of recent upheavals in the stock market and the economy in general.
One report reveals that about 25 percent of American adults have no savings, and only one-third (36 percent) believe their retirement savings are going as planned.
Even then, the median savings of people between 55 and 64 is $120,000, which is likely not enough to last through their retirement. It is even worse for those under 35, with $12,300 median retirement savings.
4. Long-Term Care Not Covered
Aside from Social Security, many Americans look to Medicare and Medicaid to cover their various medical expenses in their old age. Roughly 70 percent of people over 65 will most likely need long-term care, including nursing homes and assisted living.
The problem is Medicare does not typically cover long-term care costs. Medicaid only covers it under specific circumstances. With assisted living at around $5,000 a month in 2022 and nursing homes at roughly half that, retirees may soon find themselves financially strained. With that in mind, it would be advisable to start paying for long-term care insurance.
5. Americans Keep Working When They Can
Some people eligible for Social Security choose to continue working for various reasons. One is to supplement their Social Security and savings. As per the Bureau of Labor and Statistics, 34.8 percent of the population over 65 continue to work in 2022. The unemployment rate is three percent in 2022, which is not too bad compared to other age cohorts. The labor shortage in many industries is a good thing for would-be retirees, who might have found it hard to find employment otherwise.
These facts about retirement planning should serve as a wake-up call. It is never too late to start saving, but it takes time to accumulate enough to see you through retirement. If you decide to continue working past retirement, it should be for the fun of it and not the money.