Retirement is supposed to be a period of joy for senior citizens where they're able to travel, reflect, and sometimes just put their feet up if they choose to do so. Unfortunately, far too many senior citizens are finding themselves denied of the American dream of retiring comfortably and on their own terms.
Based on a study conducted by Bankrate in 2014, more than a third of all working adults had failed to save a cent toward their retirement. This rate was particularly high among millennials, but even among those aged 65 and up, 14% reported no retirement savings! In other words, if the data from this study carries over into the broader population, one-in-seven seniors has no retirement savings whatsoever.
This is a problem -- and it's being compounded by a handful of major challenges that many senior citizens are currently facing. Let's briefly run through the seven biggest financial challenges facing seniors, in no particular order, and then afterward we'll offer a few suggestions aimed at boosting income in retirement.
The seven biggest financial challenges facing seniors in retirement
- Historically low interest rates: One of the more visible problems for senior citizens has been the Federal Reserve's more than six-year run of keeping the federal funds target at a record low. While low lending rates tend to boost hiring and allow businesses and homeowners to refinance debt at attractive levels, it's effectively wiped out the opportunity to net substantial income from fixed-income investment such as CDs, money market accounts, savings accounts, and bonds. Chances are a majority of these investment tools aren't outpacing inflation, thus costing seniors real money.
- Distrust of the stock market: The Great Recession wound up being a great opportunity for long-term investors to load up on attractively priced stocks. However, for senior citizens it's a reminder of the volatile nature of the stock market, which works contrary to their general risk-averse nature. Thus, while the broad-based S&P 500 has bounced more than 200% off of its lows, senior citizens have mostly kept to the sidelines and stuck with low-yielding fixed-income investment vehicles.
- Social Security problems: Based on the 2015 Social Security Fact Sheet from the Social Security Administration, around half (52%) of all aged couples count on Social Security for at least 50% of their income in retirement, while 47% of unmarried seniors count on Social Security income for at least 90% of their income in retirement. This a potentially big problem considering that the Old-Age, Survivors, and Disability Insurance Trust, or OASDI, will burn through its remaining cash reserves by 2033. If nothing is done by Congress, seniors could be facing a 23% benefits haircut by 2033.
- An unfavorable jobs market: For seniors with little-to-no retirement savings, or those who are overly reliant on Social Security income, going back to work is a viable option. Unfortunately, the job environment for senior citizens isn't all that welcoming. Although older workers are more likely to be retained by businesses, it takes older workers longer to find a job once unemployed, and in general, businesses are opting for younger employees that are willing to accept lower wages, further hurting the job prospects of seniors.
- Rising healthcare costs: Heading into retirement there's the misconception that Medicare is a fix-all program for the elderly. Unfortunately, it doesn't cover all medical costs, and the out-of-pocket expenses for their medical care can be quite extensive. In fact, in 2012 the Employee Benefit Research Institute estimated that one-in-five seniors skipped seeing their doctor because of high out-of-pocket costs. There's also a focus by drug developers and medical device makers to create novel targeted and/or personalized therapeutics, which are expected to continue to push the price of drugs, diagnostics, and medical devices even higher.
- Debt: Instead of entering their golden years debt free, more and more senior citizens are finding themselves buried up their necks in debt. In 1992 just a quarter of all homeowners over the age of 62 still had a mortgage payment. This figure had risen to 45% by 2010. Furthermore, student loan debt for senior citizens (yes ... student loan debt!) has jumped more than 500% from 2005 to $18 billion.
- Feeling obligated to assist their adult kids: Lastly, a report last year from the Pew Research Center showed that of seniors aged 60 and up that are no longer working, 43% admitted to helping their adult children pay their bills. I certainly can't fault seniors for helping their children or family, but it's having serious implications on their remaining nest egg. It's also worth noting that 20% of that $18 billion in aforementioned student loan debt was taken out to support a child or dependent going to college.
Seniors: take back your retirement
Unless you have a DeLorean with a flux capacitor handy, you can't change the past a la Back to the Future. However, that doesn't mean senior citizens are out of options when it comes to improving their retirement outlook, even if they're already retired.
First, it's imperative that seniors understand the many ins and outs of the Social Security program. For example, the ability for couples to use the File as a Spouse First strategy allows one spouse to collect spousal benefits while his or her benefits are suspended and allowed to grow. Over the long run, the combined income generated for the couple could be greater than if they'd simply claimed their own benefits. This is just one of many examples of how seniors can boost their Social Security income by becoming familiar with the program and their options.
Another important point is senior citizens have to be willing to invest some portion of their nest egg in the stock market. While investing a huge percentage of their wealth in the stock market may not be prudent, it's one of the few investment vehicles that regularly outperformed inflation over the long run. With seniors living longer than ever these days, they'll need their nest egg to stretch further than ever. When in doubt, seniors can always turn to index funds or electronic-traded funds, or ETFs, if they want to avoid the rigors of individual stock picking.
Working longer is obviously an option, although finding meaningful work, as was discussed above, can be difficult. If you do land a job you might be best served utilizing the money to help pay down what remaining debts you have, and/or using this money to purchase supplemental health insurance that will help cover medical treatment expenses not covered by Medicare.
Finally, it's important that you realize this is your retirement, and your kids and dependents need to understand that. Your kids and grandkids can take out loans against their home, car, or college education, but you can't take a loan out against your retirement. Saying no to financially helping out a family member or dependent may not be fun, but it's the financially smart thing to do if you haven't adequately saved for your retirement.