I read a statistic from the US Government Accountability Office that says that about 50% of those age 65 or older, who are retired, rely mainly on Social Security benefits to survive.
Social Security is only designed to replace about 40% of our pre-retirement income(for average wage earners). Go HERE to read this. It is an actual quote from the Social Security Adminstration. (You can also access a Retirement Estimator from that page to see what your Social Security Benefits would look like using current information.)
Social Security is only a part of the proverbial 3-legged stool of retirement.
Pensions(or Defined Benefits Plan or 401Ks)are another part, and savings and investments are the last part of that 3 sided retirement income instrument.
Even if you have yet to put anything away into a retirement account it is never too late to start, no matter your age. The younger you are when you start saving the better, but even into your 60's there is time to put away something so that you aren't living in a cardboard box or raiding dumpster for dinner when you get old.
The average Social Security check last year was $1,340 a month or $16,080 a year.
But that amount is before Medicare benefit payments are deducted(which you are enrolled in at age 65). At the very least Medicare Part B premiums are $104.90 a month and Part C and/or D plans add to that cost(depending on the plan). So the average check is now down to $1,235.10 and probably lower due to paying for supplemental Part C/D plans.
Could you live on $1,235.10 a month/$14,821.20 a year?
Even living in the paid for house I do, once I deduct the taxes, sewage and garbage fees, if I only had this average Social Security check coming in I'd be down to having $10,002.72 to live off of per year.
The car costs, utilities, water and phone costs would take another $6,868.71 out and leave $3,134.00 of that check to cover all food and toiletry costs for the year. Plus if we needed dental or vision care(which aren't included in Medicare)or a surprise car repair/replacement that would also have to come out of that $3K leftover for food/toiletries. Seeing as I spent over $4K last year on food/toiletries, and I keep a very tight food budget compared to the average American consumer, we'd be over budget and in the red and having to put expenses on credit cards(which we wouldn't be able to pay off ever).
Forget about traveling, eating out, entertainment that wasn't free or giving our children gifts or donating to charity. It just wouldn't fit into this budget.
Thankfully for us, we won't have to live on that average Social Security benefits check alone, as we have saved for many years for our retirement.
Please no matter your age start saving something for retirement now. I beg you!
Even if you think you'll work until you die so you don't think you have to save. Life never works out the way you want it to/think it will. Working until you drop dead is a great plan unless of course you get sick and can't work. And at some point in this journey called life we will all get sick and it might incapacitate you well before you plan on not working and force you to stop earning an income. You could be disabled for many years before you leave this Earth and then what happens when you try to survive on a Social Security and/or Disability check that just isn't enough?
Anything you can put away for your tomorrow is a bonus. Do you really "need" that coffee beverage before work or that third cocktail at Happy Hour? Do you need to buy yet another sweater or go out to lunch instead of brown bagging it to work?
Take that $2, $4, $8 or $20 instead and start tucking it away into a savings account.
Score a savings at the grocery store? Why not take that amount you "saved" and actually put it into the bank and once you have enough roll that account into an investment instrument?
Be good to yourself by looking out for your tomorrows.
Start saving for your "tomorrow you".
One day your "tomorrow you" will thank you.
Sluggy
Yes and yes! I was just updating based on the abysmal market, but going more conservative I think we will be doing ok. Regular savings is our goal to increase as we're maxing everywhere we can in deferred and Roth.
ReplyDeleteHi Sluggy,
ReplyDeleteFirst off, in today's economy, no one can save any money. That's a moot point. That's because for the first time ever, people are paying more in taxes than food, clothing, housing combined. Here's the link/proof:
http://www.washingtonexaminer.com/americans-spend-more-on-taxes-than-food-clothing-housing-combined/article/2587799
As long as Americans keep wanting more and more government handouts, the Democrats are more than happy to dole it out. It has created a Catch 22 whereby people have now become trapped inside the system and can not get out nor free themselves. More and more retirees must now depend on Social Security and Medicare (which when combined with supplemental insurance and Part D) takes 20% out of your Social Security. People may soon find themselves on Medicaid as they get poorer and poorer.
We all can give out advice to others to save, save, save, but for most people it is not a reality.
That is why retirees must hold a part time job in retirement to supplement their Soc Sec & Medicare.
My only extra advice that I can give from experience, and I tell my children the same is: buy one home before you turn 35, stay in it till you turn 65 (30 year mortgage) and at least you will have built up equity. NEVER EVER borrow out the equity for any reason, because that is your retirement money! At 65 you either stay in the home or sell and downsize drastically. There really is no reason for you to stay in your current home, Sluggy at your retirement. You have a big house. But that is my opinion. You and your husband have been mightily blessed that you have been able to save retirement money. Many, many people (me included) have not been as fortunate. (I am heavily relying on home equity to fund my so-called retirement...along with part time work)
I am finding the medical costs to be flabberghasting, as Medicare cuts more and more services and the prices keep rising. Ditto for food, utilities......the list goes on and on.
Think very carefully before you cast your vote in November. Many of the candidates are making promises that can only be fulfilled by raising our taxes even more. I don't know how much more we Americans can keep coughing it up.
Almost all the retirees I hang out with now, each and every month, the only way they can make ends meet is by cutting back. They are giving up cable,cars(switching to public transportation) Netflix, all-day heating/cooling (they only use it for a few hours), cutting back on quality foods, going out less, staying home more, less travel.....yada, yada, yada.
It's very frightening out there for us already retired and only getting worse. If you are fortunate to own a home, take good care of it because that may be your only retirement solution. Asking people to save money for retirement may be an impossibility.
40% of retirees have absolutely no money saved!The next category has less than $100K in the bank.
When you realize, even with Medicare, a married couple, age 65, will need at least $260,000 cash to cover the next 20 years of medical costs (and that's just the deductible and co-pays) it's a very frightening reality indeed.
Keep working, Build up equity and face the reality that when the time comes to retire, you must downsize and learn to live on less. I haven't met a fellow retiree yet who hasn't come to the same conclusion.
Good luck.
I disagree that nobody can save money now. It's possible if you are still working to put money away and not spend it all now on your lifestyle.
DeleteI agree on never taking out equity on your home. Many of the people who suffered the worst were those who used their homes as an ATM taking out HELOCs and the banks encouraged this. When the bottom fell out it pretty much screwed the pooch for those folks and many will never recover from their misstep.
What burns my toast is the Fed keeping the interest rate artificially at zero for so many years. This has really put the responsible people, who saved and have assets to invest(or at least put into CDs and Money Markets), from making ZERO on their money! Heck, if the rates weren't squelched for the last 8 years the savers in this country would be in better shape to retire.
Of course, some people can save money for retirement, especially those who have 401K's and their employer kicks in a certain percentage. But there are also many, many more who just don't have the extra bucks, for whatever reason (student loans, foolish debt, etc) and we should not admonish them. I am certain they are trying their best and should not be made to feel less than noble. Do your best. Try your best to save. But it's rough out there. This past year I have spent much time with retirees and they have stories to tell. Over the winter, I spent much time with retirees from Canada also. They aren't having an easy time of it either.
DeleteAgain, good luck to everyone. I only wish people the best.
Here's another interesting fact. Retirees in 2016 feel worse off than they did in 2012. Here's that article:
ReplyDeletehttp://www.newsmax.com/Finance/StreetTalk/Baby-Boomer-retirement-sentiment-savings/2016/04/11/id/723318/
The reasons:
1A. Boomers saying Social Security is a major source of retirement income jumped to 59 percent from 42 percent five years ago.
1B. The portion of boomers who say it's important to leave money to heirs has declined to 46 percent from 63 percent five years ago.
2. Twenty-four percent of boomers express confidence that they will have enough resources in retirement, versus 37 percent five years ago.
3. The percentage of people planning to work until age 70 has risen to 26 percent from 17 percent.
4. Twice as many now say they may have to rely on children or family to support them financially.
My personal note: anyone who touts an early retirement, is waking up to the reality that it may have been a faux pas (big mistake) to have done something like that. As time marches on, things change. What worked before might not work now.
Again, good luck to everyone!
I'd take this CNN survey with a grain of salt since it's asking folks how they FEEL about where they stand, and doesn't actually dig into the numbers/income of these folks. I am sure many of them are worse off financially but I'd also like to see among this group surveyed what their behavior was prior to the recession and how they acted when the stock market tanked back in 2008 and then the mini-tank later.
DeleteGovernment has encouraged us all to make risky moves with our money since the 1970's....like over extending ourselves with credit(remember when you could write off a car loan on your taxes?) You know that if mortgage loan tax deductions ever go away the 2008 housing crisis will look infinitesimal compared to the housing crash that this one tax-rule change(no more deducting mortgage loans)would precipitate.
Personally I think most Americans have lived beyond their means for far too long and like the canary in the coal mines, the older Boomers are serving as a warning for us all to change how we conduct our financial lives.
Sluggy,
DeleteI think your fear of our reduced tax deductions due to home ownership are slowly coming to fruition.
http://www.cnbc.com/2016/04/15/homeownership-no-longer-a-tax-break.html
That's the problem with retirement, as I have found out so far: the rules are always changing. What was effective yesterday may not work today.
I am far from being in 'dire straights' as one commenter put me. What I am trying to say is that now that I am fully retired, in retrospect, all those books I read preparing for my retirement can be thrown out the window. Until you are officially retired and in the trenches, be prepared for 'future shock'. You have to be up on current laws, commune with other retirees to learn as much as you can and remain flexible to change your course on a dime. Medicare and Social Security rules, laws and regulations are in constant flux. That's the dynamic of retirement living, to me, so far. It certainly has been an ongoing wake-up call IMHO.
I've never commented before, but this post has forced me to! (that and you've enabled the Anonymous option for commenting). It is the best one yet. If only everyone would realize the necessity of saving and investing their money for unknowns and for retirement.
ReplyDeleteI live in a city where image is everything: luxury cars are commonplace, as is name brand logos. People try hard to impress others with all of it. It's sad and comical all at once.
Great post! Thank you.
D.
Thanks for commenting.
DeleteIt's so easy to put off doing the hard things, like saving more and spending less now to be able to survive in retirement. As you age though it becomes harder to avoid the truth that delaying saving anything will come back to bite you in the rear so the sooner you see where you are heading the sooner you can change your financial ship's course.
My parents' generation was the last generation to have it better than their parents financially. Unless we are take responsibility for our own lives and stop expecting Government to bail us out we are doomed.
We do save money and are able to do so because our income is much higher than the median income. However, if our income was only 60k, which is still above the household median, we really wouldn't be able to afford to save for retirement and we're debt free except our mortgage. We still have our mortgage, property taxes, daycare, utilities, food and other expenses. It just doesn't leave much to save. Our country needs to improve the economy so people will make more money and not look for government handouts.
ReplyDeleteWhen you are young(20's, 30's)and are raising children it is much harder to put money aside I realize that. But it can be done on most income levels.(Otherwise explain to me how I hear about working class people-regular folks who just plodded along and put money aside-and when they die the family left behind discovers they left large financial assets? They make saving a priority over spending, that's how.)
Delete"The country" isn't going to improve the economy but the government, by standing out of the way and getting rid of redundant and absurd regulations will help the economy grow by allowing business owners to not have to spend so much of their capital on lawyers and satisfying rules that are just there to stymie the economy.
Cindi I'm so sorry to hear your dire situation. Curious as to why you weren't able to save during your younger years? I'm forty. Ish. And have learned since my first job at sixteen that you must save. So for me it was never optional. Savings were done and if I didn't get spending money so be it.
ReplyDeleteSluggish congrats on your position. You deem seem well organized, especially as I believe you are a one income house. Well done.
What I think is the big issue is health care. Too many people in America are morbidly obese. Which can lead to numerous health issues. Just like we should start saving, we should start getting healthier. Both will set us up for enjoyable retirement years.
As for Sluggy's recommendations, I think the bigger point is save where you can, and understand money will not just be there-as Cindi so aptly puts it, just through social security, to cover the cost of living. While the economy has far from recovered, I don't think it is all doom, and many folks, not yet retired, have more ways to save and plan than they might be taking advantage of. I do feel blessed, but I also know when I had modest raises, I didn't increase my spending, I increased my long term savings. When our kids were little, we didn't charge a vacation on credit, we camped in $19 a night camp ground. Our first house was a tiny fixer upper, that we did fix through elbow grease and labor, not a contractor, and sold for 20% more than we bought and put into it, after three years, the last partial year with two kids and only one bedroom. Had we not done those things in our twenties, we wouldn't be even close to where we are for long term savings now. Yes, the economy could totally tank, and I'll be in a horrible position-no guarantees but I like my chances better than those that spent every penny.
ReplyDelete".....but I also know when I had modest raises, I didn't increase my spending, I increased my long term saving."
DeleteThis point is #2 of my mantra!
#1-Live below your means, not AT or ABOVE your means, EVER.
#2-Avoid Lifestyle Inflation(what SAM is getting at here).
Just do those 2 things and it will enhance your chances of financial success in life.
Hi Sluggy,
ReplyDeleteWe may be on the same track as you. We worked, saved, have been frugal and are on track to retire "early" - in our mid-50's. We are indeed lucky - and I don't want to sound callous, boastful, or braggy - but I think we will be fine in retirement. Also with the luck, there was a lot of hard work. We too avoided buying expensive cars every year, taking out mortgages, financing/borrowing as much as we could in the last couple of decades. We saved the max in our 401K equivalent and did the catch-up, etc. We were frugal so that we could spend on what we wanted. We did take trips to Europe, Hawaii - but we did credit card arbitrage to get air miles and free hotels before it became popular - and we are still doing it to some extent. Lucky for us, my early hobbies were investing in the stock market - and real estate. Bought houses, lived in them, rented them out - paid them off. So, we are debt-free - no mortgages on primaries or rentals, etc. (as some people make that distinction - debt is debt to us). So, we have several rental properties, paid off - although for tax purposes - we probably should have financed some . . . at this stage in our lives, we are conservative (fiscally) and would prefer the "peace of mind" of not owing anyone anything. At one point, I was a coupon queen, but haven't been in a long time. But, I do use coupons on occasion and still enjoy a good deal. I do take my beverages to work with me (tea/coffee, etc.) and I take lunch and snacks on most days. We do not have cable, but do have Amazon, and sometimes buy seasons of shows on itunes - usually redeem American Express reward points for itunes gift cards, we do some of our own home maintenance, etc. We do our own cleaning, yard work, etc. In my "younger years" - I dyed my own hair, trimmed it myself or went to the chains - but the last couple of years I have gone to beauty schools or a salon. I don't keep a "Hard" budget anymore, but we usually don't buy something unless we need it, and I naturally seek out bargains. We do "splurge" on occasion - usually with a groupon. I guess saving comes naturally to us at this point. And while it is true that there are some people who probably don't have any room in their budget to save, there are plenty of people who probably could save more than they do. I believe those who don't save may not know how to save, some of them feel entitled, some, as you said, don't feel like they will ever retire so they "live for today", etc. I am thinking these artificially low interest rates may contribute to people not saving also . . . "what's the point?" - banks are paying 0-1% at most, inflation is higher than that, the stock market is too scary and it costs something to buy a stock . . . so, it is really tough on those just starting out and trying to save a bit at a time when there's little incentive right now . . . that being said, although we save in our 401K equivalents, saved outside of the 401Ks, invested in real estate/stocks . . . the lucky part is that we both will have pensions, eventually social security, and we get to take our health insurance with us as part of our retirement plan. I know this is getting rarer, and pensions are being changed/dropped, etc. - so, I know it will be tougher on the next generation and therefore, probably even more important to learn good saving habits. I enjoy your blog :) Kim N. - using my husband's computer . . .
Even if you do everything right with your money, unexpected pitfalls can happen to you in retirement or before. This is the mindset we all need to adopt rather than the prevailing "let's have a good time and not worry too much about retirement" attitude we see all too often today.
DeleteWhy are people on their phones constantly talking about what Kanye West said or a Kardashian wore, or who was at some big celebrity party last night? more than they ever look at their investments, tinker with their budget(IF they even have one!)or spend their evenings taking a class or learning a skill that will make them more marketable if their job ever goes away?
I hate to be the Henny Penny of this generation but most of us are fiddling while Rome is burning, to mix a clique or two. ;-)
And even if banks are paying nothing(and screwing the financially responsible members of our society)we still need to squirrel away whatever we can. So we don't get but <1%....at least we still have whatever we did save and we have something rather than nothing.
Like you I know we will be ok in retirement because well, we HAVE TO BE. lolz
I fear for my kids and their generation though.
I tried not to over indulge them growing up and to install them with good financial sense and a fear of borrowing as that's a slippery slope.
But they have to live out in a scary world that tells them every day that what I taught them is crap.
Thanks for the comment!
I too think it is still important to save what you can and in this stage in life, we do keep $ liquid. We researched and found the best deal we could - we keep liquid cash in an account that pays approximately 1%. There are banks out there with some incentives - sign-up and so x, y, and z and they will pay you a bonus, etc. We have one child and we have tried to install good financial sense into her growing mind also. Talk about "not being fair" - today's college education is what is getting my goat at the moment. My daughter is just finish her sophomore year . . . I had a whole paragraph about that - but had to delete it because I had too many "characters" . . . I don't think you are being "Henny Penny" . . . you are just being "realistic", "blunt", "honest" - qualities I appreciate - but realize not for everybody. Kim N.
ReplyDeleteI feel your pain on the whole college education front as our youngest is finishing his 2nd year of college. The cost has gotten so prohibitive and I blame all that financial aid the govt. makes available in part. Govt. gonna give aid, the schools will take it and use the profits they earn in ridiculous ways(luxury housing, pay their administrators ludicrous salaries and add more and more layers of bureaucracy, etc.)and keep raising the price of college because they know parents will just keep taking out more and more aid.
DeleteWell people are finally saying "Enough!" to high priced colleges and not letting their know-nothing-about-money kids direct where they HAVE TO go to college. Colleges are actually starting to not raise prices 3% every year(some)and colleges are actually closing(unheard of before now)due to declining enrollment. Moody's predicts the rate of college closures is going to triple by 2017.
We have a 14 school state college system in PA. Basically all these schools charge about the same amount to attend. When my oldest started college in 2009 it cost $13K a year to go to one of these schools(tuition/fees/room/board). What did it cost for my youngest this past year in 20015? $22K A $9K increase in 6 years and we'll be paying about $25K for his last year in 2017. Oldest cost about $58K for 4 years, Youngest will cost close to $91K for 4 years. Same college system and basically the same education for approaching double the price.
WTF?!?
Yup - and many schools don't give academic scholarships - most are based on finances . . . and if I wanted to complain, which won't help, we don't qualify because we were good stewards of our $. Lucky for us, my daughter did get a partial academic scholarship her first year, and we invested in a pre-paid tuition plan which helps some, but there's still plenty leftover to pay. This is where I know a lot of people disagree - but, we were frugal so that we could pay for her education. Times are different with college expenses now - and more schools need to get realistic and quit squandering the $ on wasteful things and get back to the basics. My husband and I were first generation college graduates - but we both worked/lived at home/tested out of classes/etc. and came out with very little debt or no debt. Sadly, in this day and age, working part-time at a minimum wage job will most likely cover books and maybe a bit of tuition, but that is it. When I went, you could work part-time and cover all of your tuition at a State institution, books, etc. I think the stats about the average college graduate coming out with $3XK in debt is outdated. So, while we think schools are gouging us, we are happy that we saved and didn't get into heavy debt so that we are able to do this for our daughter. It is an investment for us - to give her the tools and a clean slate to hopefully have a better chance to find her way though life. Most importantly, while not always fun (unless you turn it into a game - how much can I save this week, etc.) squirreling away $ gives you options. I tell my husband, we can be problem avoiders and plan ahead as much as possible, or we can bury our head in the sand and wait for a problem to bite us in the . . . and deal with it later. While all problems cannot be avoided, I'd rather not have problems than to be constantly dealing with them. Kim N.
ReplyDeleteAmen! Money does give you options. And when you have money you can stop living your life by just reacting to problems in life. That's the way most people live...having to constantly react to what life throws at you, instead of controlling your path in life. Having money/control let's you not have to keep dealing with financial crises in your life.
DeleteHaving a bill taken out twice from your account by mistake, having your paycheck delayed a week, etc. These things happen in life but if you are living a lifestyle that puts you close to the edge of solvency it can mean financial crisis is your norm, and by living a life this way, means you are forever reacting to crisis and not directly your financial life. It's no way to life. It means stress too that affects your entire life and your relationships.
One thing that bothers me is watching my in-laws luxurious lifestyle. This due to their very generous pension: healthcare 100% covered and very generous monthly income checks for the rest of their lives. Also, he retired early, while in his early 50's. I think these pension plans of the previous generation are bit too generous. My generation just looks back at it and can't believe it. My in-laws are constantly updating their home, and I mean ridiculous things like them saying they don't like the corners of their doorway/entryways anymore so they decided to hire a contractor to make them more curved! I've lost count on how many times they've redone bathrooms, additions, kitchen, landscaping, etc... It makes me mad (obviously) and jealous! My husband and I have saved our money for decades, but we'll never be able to live a life of no concern about money like they do. And isn't my generation paying for their pension?
ReplyDeleteI do save for retirement, but I have this terrible intuition it is all for naught. I am going to work until I drop, or drop before retirement, or the funds will not be there thanks to probable global financial ruin.
ReplyDeleteGreat post Slug Mama. None of us know what the future holds but you are spot on, we at least need to try and prepare. The hubby and I aren't in a great place financially but we're saving :)
ReplyDelete