America’s retirement crisis is the most gruesome wreck you’ll find on Main Street. Victims happen every day amid a financial bloodbath of too much debt, not enough savings, and stalled wages. We can’t look away — nor should we. More than ever, you need to prepare for a time when you’ll want or need to retire.
In 1974, Congress passed the Employee Retirement Income Security Act and the IRA was introduced. Four years later, the IRS added a paragraph to the tax code, which led to the first 401(k) in 1981. Today, IRA and 401(K) retirement accounts have replaced pensions, with a downside: They are do-it-yourself retirement plans. When faced with the decision to save for retirement, individuals often make the default or “no decision” choice. But participants must take action to save for a voluntary retirement plan, so the “no decision” choice is a decision not to save.
This is slowly changing as more employers automatically enroll workers into 401(k) plans. But if you need a good scare to jumpstart your retirement plan, we’ve assembled a list of 15 retirement statistics that will scare the crap out of you — and hopefully get you thinking about saving more.
1. Nothing saved for retirement
Your mama may have told you to be happy with what you’ve got, but that isn’t much if we’re talking about retirement savings. A recent survey from GoBankingRates.com finds more than half of Americans have less than $10,000 saved for retirement, with one in three having nothing saved. The National Institute on Retirement Security estimates the nation’s retirement savings gap is between $6.8 and $14 trillion.
Exactly how much you need to save for retirement is an ongoing debate, but one thing is clear: You’ll need more than nothing.
Next: These are even worse than airline fees.
2. Fees can rob your retirement blind
Life is full of fees: convenience fees, installation fees, cancellation fees, ATM fees, checked-bag fees, it never ends. These fees are usually expressed in dollar signs, unless we’re talking about investing fees. Wall Street has some of the most elusive fee disclosures. Instead of dollar signs, expense ratios (the most common fees in retirement accounts) are expressed as percentages.
For example, an expense ratio of 1.25% seems low but in terms of dollars, that fee will cost you $125 annually for every $10,000 invested. Compounded over time, that adds up to staggering amounts. Making matters worse, you don’t see the fee subtracted from your balance statement. Instead, it’s subtracted from your market returns before your statement is even made.
FutureAdvisor calculates how different expense ratios affect two identical 401(k) portfolios starting at $10,000, and receiving the maximum annual contribution for 40 years. The first portfolio has an expense ratio of only 0.25%. It reaches a value of $1.49 million, with $80,985 in lifetime fees paid. The second portfolio has an expense ratio of 1.25%. It reaches a value of $1.21 million. That’s still a nice payday, but lifetime fees total a whopping $357,488. You could’ve saved $276,503 by simply choosing a low-cost fund (all other things equal).
Lesson learned: Pay attention to fees. If you notice an abundance of high-cost funds in your 401(k), talk to your employer about switching providers. Many employers do care about their employees’ retirement options. Examples of low-cost providers include Ubiquity, Employer Fiduciary, and Vanguard.
Next: This generation experiences a lot of financial regret.
3. Baby Boomers wish they’d done things differently
As a whole, Baby Boomers are not ready for retirement. According to a survey by the Insured Retirement Institute, 76% of Baby Boomers are not confident that they have enough saved for retirement. Of those lacking confidence, 68% wish they’d saved more and 67% would’ve started saving earlier. More than half of Baby Boomers said they need Social Security to make it through their retired years.
These findings may surprise you; the Baby Boomer generation is famously hard-working and self-reliant. Known for being goal-oriented, they’ll likely remain focused on their retirement goals throughout their golden years. We’ll let this be a lesson for Millennials.
Next: A forced retirement doesn’t just happen to professional athletes.
4. You might not retire on your own terms
Not everyone will be able to work well into their 80s like Warren Buffett, or well into their 90s like his right-hand man Charlie Munger. Gallup finds the average retirement age is 62. This corresponds with the Center for Retirement Research at Boston’s research that finds the average retirement age is about 64 for men and 62 for women.
Retiring when you’re physically and financially able to enjoy life is great news, but that’s not always the case. In fact, 55% of retirees actually retired earlier than expected, with health reasons cited as the No. 1 reason, followed by job loss. The third of workers expecting to never retire are in for a rude awakening. Don’t count on being able to work longer to make up for a lack of savings.
Next: Few retirees can escape this expense.
5. Healthcare costs are sickening in retirement
Health truly equals wealth in retirement. Research from Fidelity says a couple that retired in 2015, both aged 65, will spend an estimated $245,000 on healthcare throughout retirement. That’s up from $220,000 in 2014 and $190,000 in 2005. Longer life expectancy and anticipated annual increases for medical and prescription expenses are the primary factors raising the bill.
“The sticker shock of $245,000 hopefully reinforces for many people that they need to act now, regardless of their age,” said Brad Kimler, executive vice president of Fidelity’s Benefits Consulting Services, in a press release. “For people offered a high-deductible health plan with a health savings account at work, choosing this option can really help them prepare, especially for Millennials who have a long time to save.”
Next: Not taking advantage of this benefit is basically throwing away money.
6. Millions miss out on “free” retirement money
We need all the help we can get when it comes to saving for retirement. Unfortunately, millions of Americans don’t do themselves any favors. According to Financial Engines, an independent investment advisor, one quarter of employees are not saving enough money to receive their employer’s 401(k) match. On average, those employees miss out on an extra $1,336 a year, or a little less than an extra $25 a week. Overall, Americans are losing an estimated $24 billion annually in matching contributions.
It gets worse. Retirement savers also leave money on the table with the Saver’s Credit. Only 25% of American workers with annual household incomes of less than $50,000 are aware of the tax credit, which is a benefit available to low- and moderate-income workers saving for retirement. The credit reduces a taxpayer’s federal income tax and may be applied to the first $2,000 ($4,000 if married and filing jointly) of voluntary contributions an eligible worker makes to a 401(k), 403(b), or similar employer-sponsored retirement plan, or an individual retirement account (IRA).
It’s not always easy to contribute to your retirement accounts, but nobody cares about your future self like you.
Next: Don’t let finances keep you up at night.
7. You’ll likely lose sleep worrying about retirement
If you have a solid, clear financial plan for your future, you’ll rest easy. Those who feel ashamed, guilty, or embarrassed about retirement? No so much, according to a study by Ramsey Solutions. About 56% of Americans lose sleep when they think about retirement. Most of these people cite anxiety as the main feeling they equate to with their financial future.
So, in this case, ignorance is not bliss. The more you plan and save for retirement, the more sleep you’ll get. (“Less than half of Americans who feel excited or confident about their future say they lose sleep over retirement,” according to Ramsey Solutions’ research.)
Next: Educate yourself in more ways than one.
8. Student loans could haunt your golden years
Millennials know all too well the financial burden of college debt. Recent findings from the LIMRA Secure Retirement Institute reveal that millennials who start their careers with $30,000 in student loans could have $325,000 less in retirement savings compared to debt-free peers. This is a fairly typical debt load for students. In 2015, the average student loan debt totaled $33,000, compared to $10,000 in 1990.
Debt isn’t always terrible. In fact, debt can be a wise investment if it leads to a significant increase in your earning potential. The trick is researching career options and understand how to reduce what you spend on a college degree. Financial aid, scholarships, technical degrees, and community colleges may help dampen the impact of education costs. At least six different student loan forgiveness programs can help you erase college debt.
Next: Women need a retirement plan more than ever.
9. Women are less prepared for retirement
Women are significantly less likely to save for retirement. The gap between men’s and women’s retirement savings equates to as much as 26% according to a report by GoBankingRate. (This widens as men and women’s balances get higher.) The women surveyed contributed to findings that state they’re 27% more likely than men to have no retirement saving. Nearly two-thirds of women have nothing saved or less than $10,000 in retirement savings (compared to 52% of men).
Many factors affect women’s abilities to save. It’s harder for women to save in general, as they earn less than men (making $0.79 for every dollar men make in full-time positions). Additionally, women often take time out of the workforce to raise children or care for elderly parents. During those times they may not be able to contribute to retirement savings. In all, women must save 18% while men need to save 10% to reach the same financial level in retirement.
Next: Are you smarter than a … financial advisor?
10. Financial literacy took a detour
I’m reminded of a quote from Mickey Mantle: “It’s unbelievable how much you don’t know about the game you’ve been playing all your life.”
It’s unbelievable how much people don’t know about something they try to acquire all their lives. Standard & Poor’s interviewed over 150,000 adults in more than 140 countries to gauge global financial literacy. The results are painful. Only 33% of adults worldwide can correctly answer at least three out of four financial concepts involving risk diversification, inflation, numeracy, and compound interest. That means 3.5 billion adults globally, most in developing economies, lack an understanding of basic financial concepts.
A lack of understanding creates an abundance of uncertainty and stress, which helps explain why 60% of employees report feeling somewhat or very stressed about their financial situations, or why 62% of millennials want a financial advisor to walk them through every step of the retirement planning process.
Next: Financial patience is a virtue, too.
11. The market can be slow sometimes
The stock market has three directions: up, down, and sideways. If investing in stocks is part of your retirement plan, building wealth can feel slow when the market isn’t ascending in a nice, straight line. Your retirement balances may even go backward from time to time.
Fidelity’s analysis of retirement accounts reveal that average balances dipped in the beginning of 2016. The average 401(k) balance fell from $91,800 in the first quarter of 2015 to $87,300 in the first quarter of 2016. The average IRA balance fell from $94,100 to $89,300 over the same period. These declines are due to the stock market’s worst new-year start in history, which is why it’s vital that you regard investing as a multi-decade process, and not get caught up in short-term volatility.
Next: Don’t make Social Security your one and only plan.
12. Social Security to become less sociable
Nobody knows what Social Security will look like in a couple decades, but it will likely look different in some capacity. Without reform, benefits will need to be cut by 23% in aggregate in 2033, according to a recent report from the Social Security Administration. In other words, after the depletion of reserves, continuing tax income is expected to be sufficient enough to pay 77% of scheduled benefits in 2033.
Social Security is a lifeline to retirees. According to the Transamerica Center for Retirement Studies, Social Security is the most common cited source of income for retirees, with savings and investments at a distant second. The median age they started collecting benefits was 62. In fact, the Economic Policy Institute, a nonpartisan think tank, estimates that Social Security keeps nearly 27 million Americans above the poverty threshold, as gauged by the Supplemental Poverty Measure.
Next: Let’s hope for the best concerning your lifespan.
13. You might live longer than expected — and need more savings to do so
Once you hit age 65, roughly the average retirement age, your odds of living for another decade or two is quite high. Men age 65 today have a 78% chance of living another 10 years, while women have an 85% chance, according to JPMorgan’s research. The odds of a long life increase dramatically for couples. In fact, couples age 65 today have an astounding 97% chance that at least one of them lives another 10 years and an 89% chance that one experiences their 80th birthday. It almost comes down to a coin flip that at least one person in the relationship lives to 90.
In short, you should plan on living to at least 90 or perhaps longer, depending on your family history. I once had an Ameriprise financial planner tell me he usually assumes his clients will live to be 100, just to be on the safe side.
Next: Retirement would be pretty boring without this.
14. “Fun money” is more important than it seems
Retirement priorities may lie with healthcare concerns and basic necessities. But if you don’t save for leisure activities, you’ll find yourself in a financial conundrum nonetheless. Nearly 60% of retirees don’t budget for leisurely pursuits as they save for retirement, according to a Merrill Lynch study.
Although you may dream of learning a new skill or pursuing a hobby in retirement, it won’t happen if you don’t have the resources to do so. Factoring in entertainment expenses is crucial to a well-planned retirement. In fact, you may want to plan for even more leisurely expenses given the free time retirement allows.
Next: You don’t want to end up in this position.
15. Seniors are declaring bankruptcy at an unprecedented rate
In 1991, only 2.1% of those filing for bankruptcy were 65 or older. This number climbed to 7% by 2007, a frightening number considering the more limited options seniors have for making money. This research, conducted by the Employee Benefit Research Institute, notes that “without a job or income stream to convince lenders otherwise, you may have a hard time opening credit cards, securing transportation, or renting a home as a senior if you’re forced to go this route.”
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