The Myth of the Retirement Crisis
We often hear people say that there’s a retirement crisis in America—no one is saving anything, and they’re doomed to run out of money! Even Bankrate tells us that 21% of working Americans aren’t saving anything at all. That’s right, nothing. Sounds pretty scary, doesn’t it?
But is there really a crisis on the horizon for retirees? Since we’ve been hearing about this coming retirement apocalypse for so many years, you’d think we’d see evidence of it somewhere. But we don’t. In fact, a Gallup poll last year showed that nearly 80% of retirees reported having enough to live comfortably.
Here’s something else: EBRI tracked changes in non-housing assets during the first two decades of retirement for people with different levels of assets. They found that those who retired with $200,000 or less, after 19–20 years, still had about 75% of their savings intact (right around $150,000). And those who retired with more than $500,000 had only spent about 12% of their savings over that same time period.
How is that possible?
The answer to that question seems to tell us why there’s no widespread retirement crisis. The reason people aren’t depleting their portfolios is because they tend to spend their income instead of their savings. Things like Social Security, pensions (if they have them), annuity payments, maybe income from part-time work—that’s the money they’re living on. Just like they did during their working years They spend what they make and only dip into savings when it’s absolutely necessary.
And if they don’t have enough income to live they way they did during their working years, retirees just wind up tightening their belts and living on what income they do have.
What this reveals is something I’ve been saying for many years: guaranteed, or reasonably stable, income in retirement may be the key driver that determines how well you’ll live once you hang it all up. Whether the guarantee comes from the U.S. government in the form of Social Security, the PBGC with a pension, or the claims-paying ability of an insurance company with an annuity, the more guaranteed income you can create for yourself, the more you may feel you can spend and the less you may need to rely on your savings.
Keep in mind that you might have healthcare costs and long-term care costs that could eat into your savings in a big way. Not everyone will run into this issue, but those who do can really get hit hard. So it’s a good idea to talk to an advisor about ways to potentially pass many of those expenses on to an insurance company, so you might be able to keep more of your savings for yourself and your heirs.
As for the so-called retirement crisis, we wouldn’t sweat it. With a strategy that aims to cover your essential spending needs with guaranteed or reasonably stable income, you just may find that retirement is everything you thought it would be.
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