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3 uncomfortable truths about retirement

Allen Wastler

Posted on August 15, 2023

Allen Wastler is a former financial journalist with over 30-years of experience, including time at CNBC, CNN, and Knight-Ridder Newspapers.
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Note the hard truth that many people will fall short of their retirement expectations.

Warn that government programs are unlikely to completely fill the retirement needs gap.

Point out that because of healthcare and longevity gains, retirement is likely to cost more.

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:

  • Nearly half of all retirees did not have the ability to maintain the same spending level for five years after retiring.
  • By 2029, more than half of middle-income seniors will have annual financial resources of $60,000 or less, even if the equity in their homes is included.
  • More than 55 percent of parents expect their children will help take care of them or provide financial assistance as they age.

However, you can likely avoid such outcomes by planning carefully and taking advantage of the right kind of guidance. But the first step must be to face the uncomfortable truths about retirement.

Retirement savings vs. needs: A shortfall

Many Americans have not saved enough for retirement.

The exact estimates can vary, but the Federal Reserve, in its survey of consumer data, said American families had median retirement savings of roughly $65,000. And various surveys by banks, financial institutions, and research groups put estimates wider still, from as little as $17,000 in various age groups to upwards of $172,000 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 19.4 years, one research firm calculated that the average American will spend about $987,000 from retirement age on. (Calculator: How much should I save for retirement?)

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 2023 for what the Social Security Administration describes as "all retired workers" is $1,827. The maximum monthly Social Security benefit at full retirement age is $3,627 for 2023. 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 mid-2030s. Suggestions include a reduction in benefits paid out or a limitation on who can qualify for Social Security.

You are likely to live 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.

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.

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 turn to a financial professional for help. (Need a financial professional? Find one here)

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