Are Americans Prepared for Retirement?

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Retirement: everyone dreams of safe and comfortable golden years! But how do baby boomers in America today fare in securing their future?

Sad to say, most boomers’ tomorrows seem bleak. With the rising costs of health care in the country, coupled with the lack of knowledge of retirement tools and solutions, most middle-aged individuals and boomers in the retirement phase of their lives face rather confusing and frustrating times.

And this is why we’d like to list down several important aspects (and solutions) on retirement planning today. Through this approach, we hope that you and our other readers will be able to find out which factors need to be addressed in securing one’s retirement years.   

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A Lack of Savings

Several sources online reported on the dire financial circumstances that baby boomers are in when it comes to setting aside money for the future.

A common finding among multiple resources determined that a significant number of boomers do not have access to funds required for stable retirement years. One of our most mentioned references, the Insured Retirement Institute’s (IRI) Boomer Expectations for Retirement 2016 report, revealed that only 55% of their boomer respondents in the study claimed to have saved money for their future.

The statistic mentioned above directly corresponds to the Economic Policy Institute’s Retirement Inequality Chartbook (The State of American Retirement) finding of nearly half of American families have no retirement savings at all.

An even more frustrating finding is that boomers, who were able to manage to secure a nest egg, is that there is a high chance of these savings to come up short for future costs. According to a PricewaterhouseCoopers survey, almost half of all the boomer respondents in the study have less than $100,000 in funds for retirement; one-third only less than $50,000 set aside.

Also, boomers are likely to deplete their retirement nest eggs for other expenses such as medical bills and the like.

The financial disparity that results in a lack of retirement funds stems from these factors:

No Financial Awareness

A lack of education on the importance and urgency of saving for retirement leads to regrets one will definitely feel during the twilight years. For some, having a savings mindset is enough for a secured future.

But by not considering inflation, the ever-increasing rates of health care, and even committing to a savings schedule can only mean digging deeper into a retirement financial pit.

Health care costs, as mentioned by the Centers for Medicare & Medicaid Services, are expected to increase by 5.6% yearly during 2016 to 2025. Not committing or contributing too little to retirement savings such as an IRA or a 401(k) may force one to rely on other financial means to pay for retirement costs.

Now, combine the lack of financial urgency with poor health literacy skills – this potent combination will only result to future heartache both for one’s health and wallet!

Social Security (Insecurity)

Another retirement point that one needs to be aware of is the reliance on Social Security. As essential as this coverage is for boomers, relying solely on this program can be detrimental to the future.

The mentioned IRA survey stated that 59% boomer respondents would rely on Social Security as a major source of income during the retirement years. However, as pointed out by Forbes, the maximum amount one can gain from Social Security per month is $2,687 – a small sum to have considering the countless health problems one may be prone to during retirement.

Employer Retirement Plans Aren’t Up to Par as They Used to Be

Additionally, relying on a single source of work income and retirement plans offered by an employer does not grant one a safety net during the golden years.

Even if an employer does provide an individual a retirement plan, only 32% of American workers do sign up and commit to contributing, as mentioned by Census Bureau researchers in Daily Herald article. Connected to the lack of financial awareness and health literacy, awareness on the importance of contributing to retirement savings accounts still need to be worked upon by both workers and their employers.

Recession May Be a Key Factor

One point of consideration when it comes to retirement is the stock market decline last 2008 to 2009. As discussed in an Investopedia article, the recession during that particular year created a panic among most American seniors, who sold most of their policies or assets.

Also, the wave of scare that this recession caused resulted in some boomers to refer to or seek advice from friends on the best approach to tackle their finances. As such,  biased information trumped over professional services, leading into unwarranted regret for retirement plans all over.

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Women and the Hurdles They Face

Moreover, female boomers have the shorter end of the stick when it comes to preparing for the twilight years.

Gender Pay Gap

A large gap in terms of wages determined by one’s gender can still be observed today. The American Association of University Women (AAUW) highlighted the median pay gap in their latest study, The Simple Truth about the Gender Pay Gap (Spring 2017):

Median Annual Earnings (2015)

  • Men = $51,212
  • Women = $40,742

Median Wage: 80%

The loss of potential funds from the wide pay gap in the workplace is further magnified by gender roles in the society. A typical woman who decides to raise a child would, more often than not, spend less time at work to look after her child/children.

The loss of potential income then results in both short and long term financial woes. Daily expenses need to be adjusted to cover additional mouths to feed; the loss of Social Security benefits due to the lack of work years rendered can burn a hole in a woman’s pockets during retirement.

Longevity

Women, statistically, live longer than males. According to the United States Department of Health and Human Services, females are more likely to live up to 81.2 years, versus a typical male’s 76.4 years.

Longer years would then mean more money to spend. Especially for females with health problems and the ever-present possibility of attaining age-related diseases, the struggle of women to prepare for retirement can be taxing – physically, emotionally, and financially.

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Overlooked Expenses

A crucial point that the IRI report featured can be observed among the 39% of boomer respondents who have figured how much is needed to save for their future. A third among these individuals haven’t included health care costs in their plans.

These overlooked or hidden expenses can derail a boomer’s savings for retirement. And the two significant costs are:

Long Term Care

Custodial care during the twilight years is often brushed aside. Yet, as pointed out in the United States Department of Health and Human Services’ Long Term Care site, 70% of individuals age 65 years and above are more than likely to need and receives some form of long term care in their lives.

Not considering these essential services will result to more financial woes:

Median Annual Costs for Long Term Care Services (2016)

  • Private Rooms in Nursing Homes = $92,378
  • Home Health Aide Services = $46,332
  • Assisted Living Facility Services = $43,539
  • Adult Day Health Care Services = $17,680

The Gaps

For boomers enrolled in a Medicare program, financial risks in retirement still do need to be addressed. 15 million Medicare beneficiaries, as revealed by a Commonwealth Fund report, spent more than 20% of their household income on insurance premiums and out-of-pocket health care costs.

These out-of-pocket health care expenses (also called gaps, or copayments, coinsurance charges, and deductibles), at an average, can cost up to $3,024 per year.

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Solutions

As bleak at the picture was painted above with the mentioned statistics and reports, there is still hope. Boomers can still look forward to a brighter future – planning and seeking out the proper tools and solutions need to be prioritized.

Earning Mindset

Aside from saving money (better, at an earlier age), more individuals need to consider to have an earning perspective as well. Having multiple sources of revenue will always be better than relying on a single source of income. From freelance work to investing in stocks, various opportunities are available for a boomer to take advantage of.

Additionally, working during the retirement years is also possible. Consultancy work is popular among most seniors today. Other job opportunities are also available from local government postings.

Saving Goals

People preparing for retirement should always consider tracking and setting savings milestones. This way, one can get a clear view of what to expect for the future.

Plotting saving goals will also allow one to see if he or she can make the necessary adjustments to hit a target. Setting a goal can even be extended during the retirement years – the point is, having this mindset will allow one to have an optimistic and goal-oriented view that can very well apply in other aspects of life.

Long Term Care Insurance

The expensive cost of custodial care is best approached with Long Term Care Insurance (LTCI) coverage. Purchasing an LTCI plan should be done early – one can save up on premiums since rates scale to an applicant’s age.

Medicare Supplement Insurance Plan

Covering the gaps can be done by purchasing a Medicare Supplement Insurance Policy. Also known as Medigap, this insurance policy will help address both health and wealth needs during retirement. Ten standardized plans are available for applicants to choose from, and Medicare Supplement cost will vary depending on the private insurance company selling the policy. This means that these policies offer a flexible and convenient take on taking back the control one needs during retirement.

So, are Americans prepared for retirement? Circumstances do vary for each individual, but various strategies and ways to have the future anyone desires are available. It does take work, though, but the effort one puts in is definitely worth the pain and time.

We hope that your retirement plans are solid strategies for brighter golden years. Please leave a comment below if you have any questions or suggestions on how to prepare for tomorrow.

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