According to the 2023 Northwestern Mutual Planning & Progress study,Americans report having less than $90,000 on average in retirement savings. Individual retirement accounts (IRAs) and 401(k) savings plans strive to compensate for the lack of traditional pension plans, however, many Americans have not been able to take advantage of these or cannot afford to save enough for retirement.
Key Takeaways
- Leaving the workplace at age 65 may mean funding over 20 years of retirement.
- Retirees often scale back their lifestyle or downsize to supplement retirement.
- Those without adequate retirement funds may need to continue to work past retirement age.
Funding Retirement
Retirement means the end of a steady income, which is why having a nest egg is important. Some financial experts say retirees need up to 80% of their pre-retirement income once they stop working. An annual income of $100,000 means $80,000 will be needed each year to maintain an individual's lifestyle. Without savings or a pension plan, retirees need to either continue earning money or cut back on their spending.
For those who enter retirement without saved cash, their only source of income is commonly Social Security. Most individuals aged 65 and older receive the majority of their income from Social Security and without the benefits, 38.7% of these adults may fall below the official poverty line.
Historically, many workers relied on corporate pension plans to fund their retirements but those plans have decreased in the past decades. Some government jobs still have pensions, however, those jobs may not have had Social Security taxes withheld, and decrease the retiree's Social Security benefit.
Relying on Social Security
With the average monthly Social Security retirement benefit check at $1,907 in 2024, it can be a big shock to those who earned more while working. On average, Social Security replaces just 40% of a retiree's pre-retirement earnings. Although there are ways to maximize it, Social Security still functions best as an adjunct to personal savings.
When considering healthcare costs like Medicare premiums, food and housing, personal debt, and other financial obligations many retirees carry, it's clear why living solely on Social Security may not work.
$1,907
The average monthly Social Security benefit in 2024.
Downsize
Without savings, it will be difficult to maintain the same lifestyle an individual had in working years. Some retirees make adjustments by:
Continue to Work
To keep up with basic expenses in retirement, many need an extra income stream. This could mean going back to work or getting a part-time job. The Internet makes it easier than ever for retirees to work remotely. According to AARP, retirees who work part-time, freelance, or do consulting work tend to increase their retirement satisfaction by providing a sense of purpose and community.
According to a survey conducted by ResumeBuilder, 12% of retired Americans say they are very likely or somewhat likely to go back to work in 2024.
How Can Retirees Use Their Home to Supplement Retirement Income?
Individuals who have not saved for retirement and who still own homes can turn to their homes as a source of income. For some, this could mean renting a portion of their space as a separate apartment. Another option is to take a reverse mortgage on a home, although doing so can be costly and complicated.
How Can Individuals Save More Toward Retirement?
How and where workers save can be as important as how much they save. Financial vehicles behave differently and are taxed differently so exploring diversification can help minimize the impact of taxes, market volatility, and inflation.
What Is the Average Retirement Age in the United States?
In 2023, the average age for men to retire was 65 and the average age for women to retire was 63.
The Bottom Line
Retiring without savings requires sacrifices and strategies. Social Security may not provide enough money for most people to maintain their pre-retirement lifestyles. For some, downsizing or working part-time can provide a supplement to Social Security.
FAQs
You may have to rely on Social Security
What if I don't have enough money to save for retirement? ›
If you need assistance or have questions about how to save for retirement, or how much, consider seeking professional advice. Brokerage companies like Fidelity and others offer one-on-one retirement planning, advice and overall coaching to help you reach your financial goals.
What to do if you have no retirement savings? ›
Individuals who have not saved for retirement and who still own homes can turn to their homes as a source of income. For some, this could mean renting a portion of their space as a separate apartment. Another option is to take a reverse mortgage on a home, although doing so can be costly and complicated.
What could be possible consequences of not saving enough for retirement? ›
Retirees who haven't saved enough often need to downsize their homes or work longer than they planned. Your family might feel responsible for helping you if they see you're struggling with money in retirement. Retirement should be something you enjoy, but it's hard to do that if you're under financial stress.
How do I ensure I have enough money for retirement? ›
These strategies aim to help you achieve a balance between financial security and personal happiness.
- Assess your current financial situation. ...
- Set clear retirement goals. ...
- Maximise retirement savings contributions. ...
- Diversify your investment portfolio. ...
- Explore income-generating opportunities. ...
- Develop a tax-efficient strategies.
I Can't Even Hit Basic Retirement Sum
It's perfectly OK to not hit any of the 3 Retirement Sums above. There is no penalty for not hitting the Basic Retirement Sum. Not hitting the BRS only means you'll only be able to withdraw $5,000 from CPF at age 55. Your retirement payouts will not be affected.
Is it too late to save for retirement at 60? ›
It is never too late to start saving money you will use in retirement. However, the older you get, the more constraints, like wanting to retire, or required minimum distributions (RMDs), will limit your options. The good news is, many people have much more time than they think.
How many retirees have no savings? ›
WASHINGTON—A new AARP survey finds that 20% of adults ages 50+ have no retirement savings, and more than half (61%) are worried they will not have enough money to support them in retirement.
What happens when you get old and have no money? ›
Elderly individuals who are unable to turn to family for financial support and have no money can become a ward of the state. This may be the case if the senior develops a health emergency and is no longer able to live alone.
What do retirees do when they run out of money? ›
If you are already running out of money in retirement, consider part-time work, reverse mortgages, or financial assistance from family members or government programs.
Social Inequality in Later Life (Russell Sage, 2019). Most working-class people don't have a pension now, Carr says, “and if they do have a pension, they can't afford to put anything in it. And so that's part of the reason why they just amass less over time.
Do you really need to save for retirement? ›
Almost regardless of your life situation, you'll have to save money to have a comfortable retirement. Here's how to start saving and what steps you can take at each decade of your life. Here's how to run the numbers on your own retirement savings and what you need to save.
What is it like to retire on almost nothing? ›
Roughly one in seven Social Security recipients ages 65 and older depend on their benefits for nearly all their income, according to an AARP analysis. Unable to maintain the lifestyle of their working years, they trim their already trim budgets, move into smaller homes, or rely on the kindness of relatives to get by.
How do I retire if I don't have enough money? ›
If you retire with no money, you'll have to consider ways to create income to pay your living expenses. That might include applying for Social Security retirement benefits, getting a reverse mortgage if you own a home, or starting a side hustle or part-time job to generate a steady paycheck.
What's a good monthly retirement income? ›
Average Monthly Retirement Income
According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.
How can I save for retirement if I am poor? ›
Although you might be earning a lower income, you can start by contributing 1% of your salary to your retirement savings and then making 1% increments every quarter, every 6 months or each time your income increases.
What if I run out of money in retirement? ›
If you run out of money in retirement, you may need to rely on family members or government programs for financial assistance. You may also need to reduce your standard of living or make significant lifestyle changes.
What if I haven't saved for retirement at 50? ›
If you didn't make saving for retirement a priority early in life, it's not too late to catch up. At age 50, you can start making extra contributions to your tax-sheltered retirement accounts (called catch-up contributions). Younger workers can only contribute $23,000 to their 401(k)s and $7,000 to their IRAs in 2024.
