One thing I don’t like to do here at OutOfYourRut is write to the financially blessed. There’s more money in doing that, I’m not going to lie. But there are a lot more people who don’t fit into that category, and that’s always been my target audience. In my everyday life I meet people of ordinary means all the time. And one thing I’m gathering is that retirement will be a fantasy for most Americans.
It seems as though millions are finally coming around to that reality. But if you haven’t – or if you need reinforcement of the point from time to time – that’s a niche I’m trying to fill here. And to tell you that your life won’t be doom and gloom if you never retire, or if you can only semi-retire.
The Retirement Savings Shortfall
So why does it seem that I’m so “down on retirement?”. Actually I’m nothing of the sort. But what I am is a huge fan of reality. And reality is pointing in a radically different direction than the conventional wisdom is where retirement is concerned.
Despite the retirement optimism so common on the web, the vast majority of Americans continue to be only minimally prepared. According to a survey conducted by GoBankingRates earlier this year, 33% of Americans have no retirement savings whatsoever. Another 23% have less than $10,000. That means that 56% of Americans have either nothing, or close to nothing, saved for retirement.
At the upper end of the scale, 13% have over $300,000 saved, which would put them in a solid position to enjoy at least a modest retirement, though certainly nothing like the TV version of beaches, palm trees and golf courses.
This is consistent with reports that the wealth of the top 10% of households continues to grow, while the wealth of most of the rest limps along. But what’s interesting – in a sad way – is that nearly everyone in the country continues to look forward to a comfortable retirement. In 21st Century America, as it was in late 20th Century America, retirement is seen as a guaranteed part of the American Dream.
But as I’ve often written, it’s time for a new dream – one that’s more consistent with what’s really happening. I think that this whole retirement crisis – and that’s just what it is – will sort itself out once we do.
The Lack of Retirement Savings Probably Isn’t Your Fault
The retirement cheer leading fraternity will tell you that if you are among those with scant retirement savings that it’s categorically you’re own fault. Sometimes that’s true. But here’s a scary statistic: the median household income income in the US for 2014 was $53,657. That means that half of all households earned more, half earned less. (The 2015 figure will be out by the end of 2016).
When you factor housing, utilities, debt payments, car expenses, and especially medical insurance and out of pocket, that doesn’t leave much available for retirement for at least half the population. And a household income of $53,657 up to $100,000 doesn’t buy what it used to, particularly in high cost metropolitan locations.
Then there’s career instability, a hallmark of this century. One thing that successful retirement saving unequivocally requires is consistency of both income and contributions. That’s hard to come by if you’re facing a job loss every few years. And even when you’re re-employed, it can take years to pay off debts taken on (for survival) in the time that you were out of work.
Many who once had generously funded retirement plans drained them to survive a job loss, to pay uncovered medical expenses (health insurance disappears with a layoff) or to help put their children through college. I saw it all the time in my accounting career.
Another requirement is a steadily increasing income. Not only is a rising income necessary to enable you to keep up with the relentless rise in the cost of living, but you also need it to steadily increase your retirement contributions as you move closer to retirement. In recent years, raises have become paltry, if they’re even given. Some people, who lost jobs, were rehired into new positions at lower pay.
OK, enough of focusing on why people lack retirement savings. What’s infinitely more important is where do we go with this?
Tune Out the Retirement Hype
With the Baby Boom generation now moving rapidly into the traditional retirement years, retirement stress is on the rise. Millions of people who spent decades just trying to survive and pay the bills, now face a retirement crisis. You can’t retire on Social Security alone, and traditional pensions – that continue to fuel the retirements of of the World War II generation – are gone for all but employees of the government.
It’s time to face reality. Yes, the financial media will continue to paint a rosy picture of retirement for everyone. And yes, some on the web will keep beating you up for not being better prepared. But if retirement won’t work out for you, it’s time to change strategies. The reality is that if you are in your well past 50, and you fall into the 56% of Americans who have less than $10,000 in retirement savings, you must pursue a different course.
The first step is to tune out the hype. It’s important for us all to concentrate our efforts on where we’re most likely to succeed. Fighting a battle you can’t win is a waste of time. And the last thing you need is the stress of realizing that you may have missed the retirement train completely. It’s critically important that we learn to let go of what we can’t change.
Get Comfortable With Non-Retirement
Understand this: your life isn’t over because you can’t retire.
The more constructive path is to focus on life without retirement. You should also do your best to avoid those people, places and circumstances that will make you feel inadequate for not being one of the fortunate.
But you’ll have to accept that retirement won’t be part of your life. The sooner you can do that, the easier it will be to prepare for a different course. It may help to realize that you’ve never been retired up until this point, so it will just be a continuation of what you’ve always known.
Does that sound depressing? It doesn’t have to be.
The most basic financial plan is to work, save and invest. That’s what humanity has been doing since the beginning, and what millions continue to do even now during the retirement years. The key is to find ways to do it better, and with less stress.
In the next couple of weeks, I’ll be doing a series of posts on how to live and to even prosper during your retirement years, even if you can’t afford to retire. Please check back.
How do you feel about your own chances of retirement? Are you one of the rising class of people looking for an alternative to retirement?