If you've read any retirement-related headlines lately, it's no secret that there's a real retirement problem in America. We're doing a bad job of saving money, Social Security isn't far away from being in real trouble, and costs are rising. Fortunately, there's something you can do about it, so your retirement situation won't be a cautionary tale for the younger generations.

Americans are doing a poor job of saving for retirement
This is no big secret, but many people don't realize just how bad the problem is. Others simply plan to work forever. When it comes to our savings habits (or lack thereof), the statistics speak for themselves.

  • 88% of Americans are worried about being able maintain a comfortable standard of living in retirement, and for good reason. This is nearly nine out of every 10 people, and really puts the gravity of the "retirement crisis" into perspective.
  • According to the Social Security Administration (SSA), 34% of American workers have no savings set aside specifically for retirement.
  • 46% of all American workers have less than $10,000 saved for retirement.
  • American workers are $6.6 trillion short of what they need to retire comfortably, according to a study by Boston College's Center for Retirement Research.There are about 165 million workers covered by Social Security, so this implies a savings shortfall of about $40,000 per worker.
  • 40% of baby boomers plan to "work until they drop", according to an AARP survey.
  • However, 50% of 2015 retirees say they left the workforce earlier than they planned, for reasons such as health problems (60%), downsizing/closure of company (27%), caring for a spouse/family member (22%). Only 31% of early retirees said they retired early because they could afford it.

Social Security isn't enough -- and could become even less
Social Security is running out of money -- fast. The system is projected to pay out about $77 billion more than it bring in per year through 2018, and the deficit will get even bigger after that.

Despite how many Americans view Social Security, it isn't meant to be a standalone retirement system. Rather, it should simply bridge the gap between income from retirement savings and your cost of living. Unfortunately, too many Americans are reliant on their monthly checks.

  • The average monthly Social Security benefit is $1,335 per month, as of June 2015.
  • Social Security makes up at least half of all income for 65% of retirees.
  • And, SS income makes up more than 90% of income for 36% of retirees.
  • The latest Social Security Trustees' report forecasts that the trust funds will run out of money by 2034, at which point the system will only support three-fourths of promised benefits.

Now, I've written before that I firmly believe something will be done to fix Social Security, but that doesn't mean you should bet your future on it. The best bet is to treat Social Security like you would a small pension from an old job. It'll be nice to have the extra cash flow, but the vast majority of your retirement income will need to come from elsewhere.

Medical expenses aren't getting any smaller
It's also worth mentioning medical expenses, because many pre-retirees assume that Medicare will pay for whatever they need. Nothing could be further from the truth, and there are many things senior citizens need that aren't covered at all, such as eye exams and eyeglasses, dental care, and hearing aids. Just to mention a few facts:

  • The number of senior citizens will grow from about 40 million now to 90 million in 2050, creating more demand for healthcare services, senior housing, and more.
  • The average total medical expenses for a 65-year-old couple will be $218,000 over a 20-year period. That's in addition to what Medicare covers. However, I expect this to increase over the coming decades in response to higher demand for healthcare services as well as inflation.

My point here is not to scare you. However, to be able to prepare for retirement to the best of your ability, you need to know what expenses to expect. The last thing you want to do is believe you have enough money to retire, only to see half of your hard-earned nest egg used to pay medical expenses you assumed were covered.

But, there's good news
Not all of the facts about retirement are bad. Even if it may seem like an impossible task, there could still be time to build up a significant nest egg. Consider the following:

  • You can save up to $5,500 per year in a traditional or Roth IRA, and an additional $1,000 if you're over 50. You may even be able to get a tax deduction for traditional IRA contributions, depending on your income.
  • Even better, you can choose to save up to $18,000 for 2016 in a 401(k) or similar employer-sponsored plan, and up to $24,000 if you're over 50. Keep in mind that this doesn't include any matching contributions your employer makes.
  • Over long periods of time, stocks have averaged returns of about 9.5% per year. This means that if you invest $5,000 per year for 30 years ($150,000 total), it could grow into a nest egg of nearly $750,000. You don't need to know anything about the market to make it work for you -- investing in high-quality ETFs can do the trick.

The bottom line is that while many Americans are doing a poor job of planning for their future, you don't have to be one of them. There are several great options for retirement savings, and mutual funds and ETFs make investing easy.