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Most people, if not all, look forward to a comfortable retirement as a reward for decades of hard work.
Unfortunately, there are some uncomfortable truths about retirement that families are sometimes reluctant to face. And for many, those harsh realities could lead to some negative prospects.
Indeed, according to various studies:
- Less than half of Americans are on track to maintain their current lifestyle in retirement.
- Only 57 percent of Americans ages 55 to 64 have retirement accounts — meaning 43 percent have no dedicated retirement savings.
- The typical American household is on target to cover only 78 percent of their estimated retirement needs.
However, you can likely avoid such outcomes by planning carefully and taking advantage of the right kind of guidance. Indeed, given the challenges, some people opt to consult a financial professional for guidance.
Connect with a MassMutual financial professional
But the first step must be to face the uncomfortable truths about retirement.
The retirement savings shortfall: How big?
Many Americans have not saved enough for retirement.
The exact estimates can vary, but the Federal Reserve, in its latest survey of consumer data, said American families had median retirement savings of roughly $87,000. Various surveys by banks, financial institutions, and research groups put estimates wider still, from as little as $18,000 in various age groups to upwards of $525,000 for those approaching retirement.
All these estimates are far short of what is likely to be needed by most people.
Financial experts suggest that you need about 75 percent to 80 percent of your pre-retirement income after you exit the workforce to live at the level you are used to. And based on average annual spending for American seniors and the national average life expectancy at age 65 of roughly 20 years, one study calculated that the average American will spend about $65,000 annually from retirement age on, running up an overall sum of $1.2 million or more.
Social Security likely won’t be enough
Many people think Social Security will fill the gap. That’s unlikely for a good portion of folks.
- The estimated average monthly benefit in 2026 for what the Social Security Administration describes as "all retired workers" is $2,071.
- The maximum monthly Social Security benefit at full retirement age is $4,152 for 2026.
However, the maximum allowable benefit amount is only payable to those who had the maximum taxable earnings for at least 35 working years. So, depending on when someone retired and what he or she made, the benefit could be considerably less. (Learn more: Filing for Social Security benefits)
Social Security can also be affected by future government actions. There is ongoing political debate about how to fund the program, as it is projected to only pay full benefits until the early-2030s. Suggestions include a reduction in benefits paid out or a limitation on who can qualify for Social Security. (Learn more: Preparing for the Social Security funding dilemma)
Your retirement may be longer than you may expect
Thanks to medical advances and healthier lifestyles, people today are living longer than previous generations. Indeed, the Social Security Administration calculates that those who reach the standard retirement age of 65 can anticipate living into their eighties.
That means retirements savings need to both last longer and remain at a level that generates a necessary income level.
That’s a complicated challenge. Even if you have saved a significant sum, retirement portfolios are often tied to investments subject to market ups and downs. And sequence of returns risk adds to the challenge.
Additionally remember healthcare costs, which tend to rise with age, are a significant contributor to retirement expenses — and another reason why planning for longevity requires more than a simple savings target. (Important: Planning for health care costs in retirement)
Realities, not barriers
None of these uncomfortable truths about retirement saving are insurmountable. There are ways that retirement savings can be managed for protection against market ups and downs.
Additionally, there are ways to guarantee income for retirement, even in the face of increasing longevity. For example, annuities can help protect against both market downturns and the risk of outliving your savings. (Learn more: 5 reasons why you may need an annuity)
But it takes recognition of uncomfortable truths and the realities facing you, and, in all likelihood, some experience and guidance. That's why many people choose to work with a financial professional — someone who can help them navigate the challenges and build a plan for a more confident retirement. (Need a financial professional? Find one here)
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Frequently Asked Questions about retirement challenges
Q. How much will I need to retire comfortably?
A. Most financial experts suggest you will need roughly 75 to 80 percent of your pre-retirement income each year once you stop working, which for many people translates to $1 million or more saved over a lifetime. The exact amount depends on your lifestyle, health, and other income sources like Social Security or a pension.
Q. How long should I plan for my retirement to last?
A. The Social Security Administration calculates that someone who reaches age 65 today can expect to live into their mid-eighties on average — meaning a retirement that could last 20 years or more. Planning for longevity means ensuring your savings and income sources can last that long, even if markets are volatile.
Q. What should I do if I haven't saved enough for retirement?
A. If you feel behind on retirement savings, the most important step is to get a clear picture of where you stand and develop a plan — which often means consulting a financial professional who can assess your specific situation. Options may include increasing contributions, delaying retirement, adjusting spending expectations, or exploring guaranteed income products.
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Discover more from MassMutual…
6 ways life insurance can help with estate planning
Downsizing in retirement, is it better to rent or to own?
5 reasons why you may need an annuity
This article was originally published in June 2021. It has been updated.
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