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.

Important Information:

The information provided should not be considered specific tax, legal, or investment advice and is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. This material was gathered from sources believed to be reliable, however, its accuracy cannot be guaranteed.

Different types of investments and/or investment strategies involve varying levels of risk, and there can be no assurance that any specific investment or investment strategy (including the investments purchased and/or investment strategies devised by LCG) will be either suitable or profitable for a client's or prospective client's portfolio, thus, investments may result in a loss of principal. Accordingly, no client or prospective client should assume that the presentation (or any component thereof) serves as the receipt of, or a substitute for, personalized advice from LCG or from any other investment professional.

The information provided is based on current laws, which are subject to change at any time. Lucia Capital Group is not affiliated with or endorsed by the Social Security Administration or any government agency.

Social Security rules can be complex. For more information about Social Security benefits, visit the SSA website at www.ssa.gov, or call (800) 772-1213 to speak with an SSA representative.

Annuities are long-term investment products designed for retirement purposes. Guarantees are based on the claims-paying ability of the issuer subject to their terms and conditions. Early withdrawals may be subject to surrender penalties and, if taken prior to age 59½, may be subject to an additional 10% federal tax. Annuities are not FDIC insured. Certain terms and conditions apply, so please read insurance company materials carefully.

Long Term Care coverage policies and provisions may not be available in all states. Approval may be subject to the terms and conditions of the insurance company. Insurance product guarantees are subject to the claims-paying ability of the issuing insurance company, and are subject to their terms and conditions.

Variable annuities are long-term investment products designed for retirement purposes. Variable annuities with guarantees are available through optional riders at additional cost. Guarantees are based on the claims-paying ability of the issuer subject to their terms and conditions. Early withdrawals may be subject to surrender penalties and, if taken prior to age 59½, may be subject to an additional 10% federal tax. Annuities are not FDIC insured. Certain terms and conditions apply, so please read insurance company materials carefully.

Variable annuities with guarantees are available through optional riders at additional cost.

Investors are advised to carefully consider the investment objectives, risks, charges, and expenses of the variable annuity and its underlying investment options before investing. The applicable variable annuity prospectus contains this and other important information about the variable annuity and its underlying investment options. Please read the prospectus carefully before investing.

Insurance products offered through Lucia Securities, LLC (CA Insurance Lic. #0H40817). Lucia Securities is licensed to offer such insurance products as life, disability, long-term care, and annuities.

Rick Plum is a registered representative of, and offers securities through, Lucia Securities, LLC, a registered broker/dealer, member FINRA/SIPC. Advisory services offered through Lucia Capital Group, a registered investment advisor, and an affiliate of Lucia Securities, LLC. Registration with the SEC does not imply a certain level of skill or training.

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