Many people do not think about how much money they will need when they stop working, until they are about to retire. It is easy to avoid thinking about the subject, when you see financial services companies advertise that you need millions of dollars for retirement.
For people who earned a modest income all their working lives, numbers like that seem so far out of reach they give up and save nothing for retirement. When they stop working one day, by choice or not, they simply hope for the best. Are your aging parents afraid they will run out of money?
Why People Fear They Will Run Out of Money in Retirement
There is good reason for older Americans to worry about whether they will have enough money, after they stop working. We are living longer than ever before. Medical costs go up every year. Hardly anyone saves as much money, as the financial gurus say we need for retirement. About half of all American families have saved nothing for retirement.
How Much Americans Save for Retirement
The average retirement account savings balance (around $95,000) in America is a meaningless number. This is because it includes the high-earners who save mega-amounts and all the people who have saved nothing for retirement. It also includes all workers from age 32 to 61. A 32-year-old will not have much saved yet for retirement. The “average” of these numbers does not reveal the amount the average American has set aside for the golden years. For that number, you need the median.
The median total savings of all families, regardless whether they have retirement savings, is only $5,000. The median total savings of families with retirement savings is $60,000. The median retirement savings of American workers between the ages of 56 and 61 is $17,000.
When you consider how much it costs to live for one year without working, and these numbers represent family savings, not individual savings, so at least two people will likely depend on that money, you see just how inadequate a savings buffer most Americans have for retirement. Financial planners advise people to have ten times their annual salary in savings to have enough money to retire.
One Financial Crisis Away from Being Broke
Even if your parents somehow pay for their daily living expenses with only their Social Security retirement checks, a sudden large expense, like a significant medical bill or home repair can exhaust their savings overnight. For example, if these things happen, your parents could be left with no nest egg:
- One of them suffers a stroke, gets cancer or has a heart attack.
- The air conditioning or heating system in their house breaks down.
- Their car is totaled, and they only carried liability insurance, not replacement coverage.
One of the unfortunate cost-cutting measures seniors take, is to cancel their insurance on their home or auto or strip the coverage down to the bare minimum. When an uninsured loss happens, they cannot afford to replace their car or repair their home.
What You Can Do to Have More Money in Retirement
If you are rapidly approaching retirement age and you have set aside the amount a typical American has, you might need to delay your retirement. Working just a few more years can make a massive difference in the money you can save and in your monthly Social Security check. You might also need to downsize your house, since housing is one of the largest living expenses for most people.
This article covers the general law, and your state might have different regulations. Talk with an elder law attorney in your area.
U.S. News & World Report. “10 Worries Older Americans Face.” (accessed July 3, 2018) https://money.usnews.com/money/blogs/on-retirement/2015/07/20/10-worries-older-americans-face
Forbes. “A Startling Reality: Your Aging Parent Runs Out of Money.” (accessed July 4, 2018) https://www.forbes.com/sites/carolynrosenblatt/2012/03/24/a-startling-reality-your-aging-parent-runs-out-of-money/#7000236344da
CNBC. “Here’s how much the average American family has saved for retirement.” (accessed July 4, 2018) https://www.cnbc.com/2016/09/12/heres-how-much-the-average-american-family-has-saved-for-retirement.html