These days, overwhelming student loan debt and the uncertain future of Social Security's solvency garner most of the attention, but there's another equally severe financial crisis looming on the horizon for millions of Americans. Thousands of people retire every day, and many don't have the savings they need to last the rest of their lives.
When that well runs dry, they'll need to lean on their family members to support them or seek government assistance to cover their basic living expenses. It's a fate thousands of Americans are already experiencing, and based on data from the latest Northwestern Mutual Planning & Progress survey, tens of thousands more are set to join them in the coming decades.
The statistics say it all
While respondents in Northwestern Mutual's 2019 survey reported better money management skills than those surveyed 10 years ago, the outlook for many of their futures remains grim. The survey found:
- 22% of Americans have less than $5,000 saved for retirement.
- 15% have no retirement savings at all.
- 56% don't know how much money they need to retire comfortably.
- 41% are taking no steps to prevent themselves from running out of retirement savings, though many see this as a possibility.
The percentage of Americans with less than $5,000 in retirement savings actually decreased compared to last year, but 22% is still an alarming number of people without adequate savings.
The study focused on baby boomers and Generation X -- the two generations next in line for retirement -- and the results showed both groups have work to do. Of the 10,000 baby boomers turning 65 every day, 17% have less than $5,000 in retirement savings, and 20% have less than $5,000 in personal savings outside of a retirement account.
These numbers are even higher for Generation X, with 21% having less than $5,000 in retirement savings and 22% having less than $5,000 in personal savings. They have more time left before retirement, so it's possible they could still increase their savings before then, but if they have less than $5,000 today, it's unlikely they can save an adequate amount by the time they're ready to retire.
Many know their savings won't cut it in retirement, so they plan to extend their time in the workforce. About 46% of those surveyed said they expect to work past 65, and 18% plan to work past 74. This could help them make up their retirement savings, but an unexpected health or family issue could make working this long impossible.
How to protect your future financial security
For baby boomers and Gen Xers with little to no retirement savings, there are no easy solutions. Working longer is an option, but you can't bank on that to justify neglecting your retirement savings, because you don't know how long you'll be able to work. A Center for Retirement Research study found that 37% of retirees had been forced to retire before they were ready due to health, employment or familial issues. If one these happens to you, you may be forced to exit the workforce, whether you're ready or not.
Create a retirement plan if you haven't already by estimating the number of years of your retirement and multiplying your estimated annual living expenses in retirement by this number, adding 3% annually for inflation. A retirement calculator can do this part. Then subtract any money you expect to get from other sources like Social Security to figure out what you have to save on your own. You can estimate your Social Security benefit by creating a my Social Security account.
Unless you need every dollar you make to cover your basic living expenses, contribute at least enough to your retirement accounts to get any 401(k) match offered by your employer. This eases the burden of saving for retirement on your own. But you may have to set aside even more than that to hit your retirement goal.
Freeing up cash isn't always easy, but you must prioritize retirement savings, even if it means foregoing other more enjoyable things. Limit your discretionary purchases, cancel subscriptions you don't use, and consider downsizing your home to reduce your current expenses or consider moving to an area or state with a lower cost of living. You could also start a side hustle to get more cash coming in. Put your tax refunds and year-end bonuses toward retirement as well.
When you reach retirement, look into assistance programs for low-income seniors to help reduce your living costs. Government and nonprofit organizations help low-income families pay for food, housing costs, healthcare, and more. Don't wait until you're down to your last dime before you explore these options. If you qualify, take advantage of them right away so you can stretch what savings you do have a little further.
The future looks bleak for many of America's retirees and older working adults. It may be too late for some of them to save enough for their dream retirement, but with some planning and a frugal mindset, you may still be able to achieve a secure retirement.