As many as 40% of middle-class boomers will live in poverty in retirement.
Welcome to the new golden years reality… Golden years nightmare seems more accurate!
One has to wonder how a disaster of this proportion could have developed in the richest nation in the world. It’s a disaster I have been warning about for years.
One of the reasons is that most people begin taking their Social Security benefits at 62 and settling for the lowest possible payout. That hasn’t helped matters.
The average middle-income earner at age 62 will receive $17,532 per year from Uncle Sam. That’s above the government’s official poverty level of $12,060.
But most economists double that amount as a more realistic measure of the poverty level: $24,120.
No matter which number you use, if you don’t have a mortgage (many people retiring do) and if you live in one of the more affordable states for retirees, it is doable. But it’s not very “golden.”
Social Security benefits were never intended to be a primary source of income in retirement. But when you consider how much of our income was taxed and how much our employers had to contribute (a total of 12.4% in 2018), you can see why most have thought of it as a retirement plan.
You see, 12.4% is a big chunk of money.
That brings us to the next reason so many of us are in deep retirement kimchee.
A full 46% of us do not participate in a 401(k) or IRA at work. Between the ages of 55 and 64, the median amount of retirement savings is $120,000.
If you make it to age 65 in good health, plan on sticking around until at least 80 or 85. A nest egg of $120,000 isn’t going to make much of a difference over a 20- to 25-year retirement. It could serve as an emergency fund, but as an income source, conservatively, you’ll need an additional $6,000 to $7,000 per year.
That extra $6,000 to $7,000 will help, but after total health care costs in retirement—about $270,000 per couple—are factored in…
Well, you get the picture.
The solutions are the same as they have been forever: work longer, save more, reduce your living expenses, and get rid of as much debt as possible before you step down.
There are no easy answers, and of all the options available, working longer is the best.
But many folks physically can’t do it. The most common reason so many retire and take their Social Security benefits at 62 is because of their health. Most physically can’t work any longer.
[Note: Assuming you’re in good health and can afford to wait, we strongly encourage people to wait until age 70 to start collecting Social Security so that they receive the highest possible benefit.]
It’s a mess—and our government ignores it, in addition to a multitude of other issues except their re-elections. It’s a mess we will be living with for many years to come.
I wish I could tell you that our government will have an epiphany and suddenly realize that Social Security has to be converted into a self-supporting, required-participation, national retirement system.
Hang in there and do what you can to prepare before you step down.