15 Shocking Retirement Facts Every Current Worker Should Know

Preparing for retirement is crucial if you want security in your later years. And there's a lot you need to know to make informed choices when setting goals for the future.

Unfortunately, current workers are often lacking in the basic knowledge they need to understand what's required for retirement readiness. You don't want to be one of them, so be sure you know these 15 shocking retirement facts.

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According to a 2021 Gallup poll, just over half of Americans think they'll have plenty of money in retirement. This statistic is troubling, because it means millions of people could find themselves struggling to make ends meet.

Knowing this fact is crucial, as you can put a plan in place to make sure you're in the small majority who is confident about your financial security later in life.

ALSO READ: 3 Key Retirement Realities Most Americans Don't Know

The Employee Benefit Research Institute reports that the median age of retirement among current retirees is 62. This is a much younger retirement age than the age when many current workers anticipate quitting their jobs.

It's a big problem if you assume you'll be able to work longer than you can. If you end up having to retire at 62 when you planned to keep earning a paycheck for a while longer, you could find yourself with far too little saved to support yourself.

The Employee Benefit Research Institute reported that 72% of current workers expect they will continue to be employed in some fashion even after retiring. Unfortunately, only 30% of current retirees report they're still getting a paycheck.

Planning to supplement retirement income with money from a job can seem smart, but it's a big problem if you end up not being able to work and earn money after all.

It's important to realize up front how slim your chances of working are so you can make sure you have enough savings that this isn't necessary.

ALSO READ: 3 Pros and 2 Cons of Working in Retirement

There's a huge misunderstanding around what Social Security can actually do for you in retirement. The reality is that your benefits are intended to replace just 40% of pre-retirement earnings.

If you can't absorb a 60% reduction in your take-home pay after leaving work -- which most people can't -- you'll need to understand early on that Social Security won't provide you nearly the financial security you may have been hoping for. You must have additional money saved to live comfortably.

Sadly, many people do end up getting to retirement with too little supplementary income so they count on Social Security more than they should.

In fact, according to the Social Security Administration, 37% of men and 42% of women get 50% or more of their retirement income from their benefits. Since the average monthly Social Security check is just $1,657 in 2022, it's easy to see why this could be a big problem when it comes to financial security.

But you'll know this only if you understand the reality of this benefits program.

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Social Security already isn't enough to live on even in the best of cases. But many retirees are surprised to find out that an early claim could end up slashing their benefits even further.

Retirees must wait until their full retirement age (FRA) -- between 66 and four months and 67 -- to claim their standard benefit. Those who put off claiming longer, up until 70, get a boost to this benefit.

But early claimers who start checks sooner than FRA will face benefit cuts. If you file for checks at 62 -- the first age you can -- and 67 is your FRA, you'll be looking at a 30% reduction in your standard benefit. This can make it even harder to make ends meet if you're reliant on Social Security.

ALSO READ: 3 Reasons Claiming Social Security at 62 Could Be the Best Choice

Social Security benefits are paid out of revenue coming into the program, as well as a trust fund. The revenue will keep coming indefinitely, but the trust fund could run out by 2033 or perhaps even sooner depending on economic conditions.

If the trust fund runs dry, a de facto benefit cut will occur. Retirees will get around three-quarters of what was promised to them.

Lawmakers could also take steps to stave off this big cut -- perhaps by making full retirement age later. Many of the proposals to make Social Security more financially solvent do involve cutting benefits in some way, so it is possible future seniors will need to rely on Social Security even less than today's retirees.

Retirees could find themselves facing a shocking surprise when their state government or the federal government takes taxes out of their Social Security.

The reality is there are 12 states where benefits are taxed for at least some retirees. And the IRS takes a cut of benefits if provisional income exceeds $25,000 for single filers or $32,000 for married joint filers. Provisional income is half of Social Security benefits, all taxable income, and some nontaxable income.

It's important to plan for the possibility of taxes as this further reduces the income Social Security can offer.

ALSO READ: 38 States That Don't Tax Social Security Benefits

According to the Senior Citizens League, Social Security benefits have lost 32% of their buying power since 2000. This is because the periodic increases retirees are entitled to (called cost-of-living adjustments) aren't keeping pace with inflation.

Since the value of benefits is eroding over time, future retirees should make sure to realize their retirement checks won't stretch as far -- especially late in life.

Savings is another source of income for most seniors. But your savings may not go as far as you think. You need to maintain a safe withdrawal rate so you don't take out too much money too quickly and drain your account dry.

A general rule of thumb is that you should start by withdrawing 4% of your account balance and then adjust upward each year to account for inflation. This would mean a $1 million nest egg would give you just $40,000 in income.

Some experts also warn that the 4% rule is outdated and no longer applies as life expectancies have lengthened and projected future returns have lowered. If you believe they are right, you may need to take even less out of your accounts each year.

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According to the Employee Benefit Research Institute, a senior couple turning 65 in 2021 would need $361,000 to cover healthcare costs in retirement if their prescription drug use is in the 90th percentile.

This includes premiums, co-pays, and other things Medicare won't pay for.

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According to LongTermCare.gov, a person turning 65 today faces around a 70% chance of needing some type of nursing care during retirement.

Medicare won't typically pay for nursing home or home care services, which means that you could be stuck covering these costs out of your own pocket as a senior. Many people aren't prepared for this because they think Medicare will pay the bills.

Genworth's Cost of Care survey estimates the median cost of a private room in a nursing home at $108,405. A semi-private room and home care services also total thousands per month.

Preparing to cover these costs can be very difficult, but future retirees need a plan to make sure that a need for nursing care doesn't leave them bankrupt and destroy their chance to leave a legacy.

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Vanguard's report How America Saves shows that many Americans don't have nearly enough money to fund retirement.

Future retirees will want to make sure they have a retirement savings goal set and are working diligently toward it to have enough money to cover their costs once they are no longer getting a paycheck.

Finally, Vanguard's report shows the median 401(k) balance is even lower than the average. That's because some very high balances skew the average upward.

If a person has a nest egg of less than $40,000, retirement income from savings would be virtually nonexistent. You can't live on Social Security alone because it's not designed to be your sole income source. Therefore, be sure you're investing as much as possible so your retirement account ends up with enough money in it to support you.

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By understanding these 15 crucial facts, you can make more informed choices about the amount of money you'll need for retirement and the different sources of income that can provide it.

The sooner you realize the truth about your later years, the more prepared you can be.

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