Let’s cut right to the chase. Americans – especially Baby Boomers and members of Generation X (those between 52 and 71 years old) – are not prepared for retirement or are likely already in retirement and struggling financially.
This is the upshot of a study, “The Language of Retirement 2017,” recently co-sponsored by the Insured Retirement Institute (IRI), a trade group for the retirement income industry, and Jackson National Life Insurance Company, a leading provider of retirement products. Their dreary conclusion is based on the low savings rates of these two generations and survey respondents’ assessments of how ready they are to retire.
IRI research shows that less half of Baby Boomers and members of Generation X have any retirement savings at all, and only one in four say they are confident in their preparations for retirement.
There is also a sizable middle group with some savings, but not enough. Eighty percent of workers polled by the Employee Benefit Research Institute this year estimated they would need at least $250,000 in savings to retire comfortably, a figure substantially lower than what others think is needed. Nonetheless, many Americans are unlikely to have even that big a nest egg. A recent report by Vanguard about savers found that found that median 401(k) balance for 55-to-64-year-olds was less than $72,000.
Older Americans, as well as Millennials, are acutely aware they must save money now, or save more than they are, to generate needed income in retirement. Social Security alone is seldom enough. Even the youngest members of Generation X, with limited time before retirement, need to create a solid savings plan and select the right mix of financial products to provide sustainable income, keep pace with inflation, and better manage health care and longativity risks.
As the late playwright Tennessee Williams once put it so aptly, “You can be young without money, but you can’t be old without money.”
Here are some disturbing statistics in the IRI study:
- Eight in 10 consumers do not believe Social Security alone can provide them with sufficient income.
- Only 21% of consumers expect a pension to provide them with significant retirement income.
- Nearly a third of financial advisors surveyed reporting having three or more clients exhaust their investable assets. The reasons most often cited were overspending and excessive medical expenses.
- More than half of advisors believe at least some of their clients who do not own annuities will run out of money during retirement.
There is no panacea about retirement savings, particularly if you are older. A survey by HSBC Holdings, the London-based parent of HSNC Bank USA, has found, for example, little reason to count on your parents – assuming they are still alive – to leave you an inheritance. According to the survey, 23% of pre-retirees would ideally like to spend all their savings and let their children fend for themselves. By contrast, only 9% say they want to save “as much money as possible to pass on to the next generation,” partly because heightened longevity means they are likely to spend more of their savings.
So let’s tackle the elephant in the room: Just how should the older set go about salting away more savings? Here are five tips:
- Make an all-out push to save. This has already been mentioned, but warrants reinforcement. It may require painful lifestyle cuts, such as keeping an old car longer, downsizing your home or substantially trimming your entertainment budget, but it is essential. Someone who has nothing saved at age 50 but begins consistently putting away $1,000 a month thereafter would have about $288,000 in savings by age 65, assuming a realistic 6% annual return.
- Plan on building a sound retirement portfolio. Do not load up on stocks, figuring you need fatter returns to get to where you want to be. This could easily backfire. What is better is a mix of stock and bond funds likely to give you the best return for the level of risk you are willing to take.
- Strongly consider adding an annuity with guaranteed lifetime income payments to the mix. This helps offset longevity risk and the natural mistake many people make of selling their stock positions in a bear market. In addition, payout rates on fixed and fixed indexed annuities, in particular, are materially higher than those on competing investments, such as bank CDs.
- Stay on the job longer or find a part-time job. If you can stay on your regular job longer, you can earn and save more, and accumulate more interest. If you have already retired, consider looking for a part-time job. Your best bet may be to sidestep possible age discrimination and join the “gig economy” – i.e., work through online intermediaries. You could, among other things, be a pet sitter, a handyman, an Uber or Lyft driver, or, depending on where you live, a dog walker. More than 400,000 seniors do gig work.
- Consider more aggressive moves. You might, for instance, be able to take out a reverse mortgage, a financial agreement in which a homeowner relinquishes equity in their home in exchange for regular payments. Or perhaps sign on to Airbnb in hopes or renting a room in your home to vacationers and others.
Editor’s Note: If you’re interested in obtaining a copy of the IRI’s 2017 survey on retirement preparedness, contact Annuity FYI at (866) 223-2121 send us an email.
Copyright ©2017 AFYI Holdings Group, LLC. All Rights Reserved. No part of this article may be reproduced without the express written consent of AFYI Holdings Group, LLC.