Americans don’t seem too confident about the state of their financial readiness for retirement, if recent research and surveys are any indication.
From millennials who are too busy paying off college debt to even think about saving for retirement, to baby boomers who are hitting retirement age with nothing saved at all, the statistics paint an alarming picture. Add to that compounding factors, such as divorce and skyrocketing health care costs, and the retirement picture is muddied even further for many Americans.
What’s more, longevity is increasing. Great news, right? Sure, but now everyone will have even more time on their hands to worry about how they are going to fund their lengthening retirement.
(Related: 4 Ways to Limit Taxes on Retirement Withdrawals)
Fortunately, many of these scary statistics also come with sound advice about how to plan for and mitigate their impact.
Read on to learn more about these 18 scary retirement statistics:
Longevity has been on an upward trend for decades, and science could provide for even longer, healthier lives. But do people really want that? (Photo: iStock)
1. People could routinely live past 100, but they might not want to
Science is creating a future in which human beings could routinely live past 100 years old in relative health. But do people really want that?
Research from the Pew Research Center regarding attitudes about life extension and human enhancements show that many U.S. adults aren’t willing to embrace these possibilities, for themselves or for society as a whole.
Fifty-six percent of study respondents said they would not want to live at least 120 years. Two-thirds of adults said they would be against having a brain chip implant that could help improve their cognitive abilities, and a similar number were against the idea of using synthetic blood to augment their physical abilities.
Respondents cited concerns with artificially extending life expectancy, such as social inequality where only the rich would have access to life-extending enhancements. Two-thirds of respondents also worried about the implications of using such scientific enhancements before their full impact is understood.
The ideal lifespan is between 79 and 100 years old, 69 percent of respondents said.
Debt and marital disruption are putting women into a more vulnerable financial position today than in the past. (Photo: iStock)
2. Women are more financially fragile than they used to be
Women in their 50s are more financially fragile than they were just a decade ago, according to research from the George Washington University Global Financial Literacy Excellence Center. This trend has led to women in their 50s delaying retirement because of higher levels of debt, including educational debt, and higher rates of life-planning disruption due to divorce and widowhood.
“There are many real and complicated factors contributing to 50-something women’s sense of financial insecurity today. No matter the cause, however, it is time for the financial services industry to zero in on how it is failing women in general and contributing to the financial insecurity of women in this age group in particular,” said Carla Dearing, CEO of SUM180, an online financial planning service.
Among the report’s findings are that overall debt for women has doubled in their 50s since the early 1990s, while the percentage of 50-something women with less than $25,000 in savings has also doubled. In addition, women in their 50s are more likely to have mortgage debt totaling more than half the value of their homes.
These findings are additionally substantiated by the results of a recent survey of American workers by the Transamerica Center for Retirement Studies. This study reveals that 46 percent of women are either “not too confident” or “not at all confident” in their ability to retire with a comfortable lifestyle, compared with 36 percent of men; only 12 percent of women are “very confident” in their ability to fully retire with a comfortable lifestyle.
Many retirees count on Social Security, but cost of living increases have been small to non-existent for several years. (Photo: iStock)
3. Social Security is not keeping pace with real cost of living increases
The rising cost of living is a major concern for most Americans, and news of Social Security’s paltry 0.3 percent COLA raise in 2017 — amounting to a $5 increase — won’t do much to calm those worries.
According to a recent study from Allianz Life, fears about the rising cost of living are having a real impact on Americans’ retirement planning. Nearly half of Americans (47 percent) reported being either “very concerned” (36 percent) or “terrified” (11 percent) that the rising cost of living will affect their retirement plan, and 53 percent report they would feel either “very worried” (38 percent) or “panicked” (15 percent) about paying for expenses if their income was frozen and they never received an increase in annual salary.
Perhaps more concerning, most people don’t have a real plan to deal with inflation, as the majority said they would adjust by simply “living more modestly.” That sounds easy but may be more difficult than they think and leave them looking for other solutions, said Allianz.
Gen X experienced the dot-com bust and a global financial crisis, neither of which inspire much confidence for this generation in their financial future. (Photo: iStock)
4. Gen X is on deck, and they are nervous
We don’t tend to hear a whole lot about Gen X, but once baby boomers get done retiring, Gen X is up. And they are just as worried about their retirement readiness as everyone else.
Nearly two-thirds (63 percent) of Gen Xers are kept up at night thinking about financing their retirement, and 1 in 3 are worried they’re not earning enough money to be able to invest for the future, according to a survey by American Funds, a family of mutual funds from Capital Group.
“After experiencing the dot-com bust, the global financial crisis and the housing collapse, as well as stagnant wage growth during their formative adult years, Gen Xers — or Generation AnXious — are wary about their financial future,” said Heather Lord, senior vice president and head of strategy and innovation at Capital Group. “Perhaps because of these concerns, Gen Xers long to do better than the average market and say actively managed funds can help them reach these goals.”
Almost one-third of caregivers have been unable to save anything for retirement. (Photo: iStock)
5. Caregivers are facing a retirement crisis
A survey of families with children with special needs found that a large majority (82 percent) of caregivers are concerned that they do not have enough financial resources to last their disabled relative’s entire lifetime. Just as alarming, because of the time and cost required for caring for those with special needs, 30 percent of caregivers are not saving at all for their own retirement.
These findings are part of the new Special Needs Caregiver Survey from the American College of Financial Services, which sought to better understand the challenges that caregivers of special needs children and young adults face managing their day-to-day and long-term finances, as well as explore possible solutions that may help these households prepare for their dependent relative’s financial futures.
“Caring for a child with special needs is a full time job that requires all of your emotional and physical energy, which is why it makes sense that planning beyond the present is often delayed or ignored,” said Professor Adam Beck, director of the American College MassMutual Center for Special Needs Planning. “Leaving a special needs child financially insecure is a serious problem and this study confirms that a majority of special needs families lack the most basic preparations for their own financial security and that of their child.”
Caregivers are concerned about what the future holds for their special needs relative, and for good reason. Alarmingly, 67 percent of Americans with special needs have no Special Needs Trust established for them, which puts them at imminent risk of losing Medicaid coverage and Social Security benefits.
- Almost nine in ten caregivers (87 percent) are concerned about what will happen to their special needs relative when they are no longer living.
- Fifty-nine (59) percent of caregivers have not taken the basic step of preparing a will
- Sixty (60) percent of caregivers with life insurance have less than $300,000 of coverage and fewer than half have the protection of whole life coverage. However, the lifetime cost of caring for a dependent with autism is between $1.4 and $2.4 million.
- Only 23 percent of caregivers have a formal financial plan for their dependent and only 37 percent work with a financial advisor.
Caregivers are also concerned about their own financial future and how their caregiving responsibilities may adversely impact their retirement. Most special needs caregivers will be caregivers for the duration of their lives — encompassing their entire retirement period — yet almost one-third of this group (30 percent) is not saving at all for retirement.
- Only 16 percent of caregivers strongly believe they are financial secure.
- Seventy (70) percent believe they will have to compromise their own retirement plans in order to provide for their special needs dependent.
- Seventy-seven (77) percent are concerned they won’t be able to retire when they want to.
- Eighty (80) percent of caregivers are concerned they won’t be able to maintain a comfortable lifestyle throughout retirement.
“The number of children born with special needs continues to grow, and the cost of care is escalating as well. Unfortunately, the financial services profession has not made special needs planning a priority, so too many families are unprepared for their financial future,” said Beck. “However, there are well-established resources for special needs planning and advisors who specialize in serving these families. Together, these solutions can help provide financial security for both caregivers and those in need.”
Health care costs during retirement could add up to a hefty $130,000. (Photo: iStock)
6. Retirees need $130,000 to cover health care costs
Retirees who thought they were doing pretty well with a couple hundred thousand set aside for retirement might need to think again. Health care expenses could eat up about $130,000 during an average retiree’s golden years.
The estimate from Fidelity Investments forecasts women will spend about $135,000 on health care in retirement, while men will spend about $125,000 on health care in retirement. Why the difference? Because women tend to live longer than men.
That’s up 18 percent from 2014’s estimate for expenses including Medicare premiums, co-payments and out-of-pocket costs for items like hearing aids and glasses. Pushing the costs up are prescription drugs and increasing use of health care services as the economy recovers.
Frighteningly, this estimate doesn’t include long-term care expenses, including home health care or nursing homes, which can be astronomical.
To help mitigate these costs, people should carefully study Medicare supplemental insurance policies and maximize savings through health savings accounts while still working. Retirees can also implement strategic Social Security claiming strategies or invest in a longevity annuity.
With estimates that health care costs could average $130,000 in retirement, people are worried about being able to foot the bill. (Photo: iStock)
7. Most Americans are concerned about health care expenses in retirement
A recent study by financial services firm Edward Jones found that almost two-thirds (60 percent) of Americans are concerned about how they will pay for health care expenses in retirement.
Researchers interviewed more than 1,000 non-retired and retired Americans. The study revealed a strong variation in the level of concern between age groups. Baby Boomers, the most recent generation to enter retirement age, were the most worried about covering the cost of health care, with 69 percent of those polled indicating that they are concerned, and 41 percent suggesting that they are “very” concerned. This is a striking difference from millennials — only 19 percent of whom were “very” concerned.
“Health care expenses can be difficult to project, especially when you are decades away from retirement,” said Scott Thoma, Principal and Investment Strategist for Edward Jones. “Unexpected conditions and medical expenses that manifest later in life pose a great threat not only to physical and mental health, but also to the financial well-being of both the care receiver and the caregiver. That’s why it is critical to start preparing early — proactive planning can ultimately help individuals protect their assets over the long term, even if health complications emerge during retirement.”
A significant out-of-pocket health care expense could jeopardize many retirees’ financial security. (Photo: iStock)
8. Many retirees are one health care crisis away from financial collapse
Findings of a study by the LIMRA Secure Retirement Institute reveal that more than half of nonretired Americans believe a significant out-of-pocket health care expense ($15,000 or more) would seriously compromise their financial security in retirement.
Eight in 10 nonretired Americans think there is a 50/50 chance that they would face this kind of health care expense if they were a 65 retiree today. Although survey retirees have only been retired an average of 8 years, 10 percent have already experienced an out-of-pocket expense of $15,000 or more for health care. The actual incidence of health care shocks is likely even higher because very sick people are usually unable to complete surveys.
According to the “Consumer Expenditure Survey,” the average annual amount spent on health care in 2014 was $5,956 for those age 65 to 74 and $5,708 for those 75 years and older. This represents about 12 percent of all annual spending for those age 65 to 74 and 15 percent for those age 75 or older.
Ignoring large out-of-pocket health care expenses, 6 in 10 nonretired Americans do not believe they have enough to cover day-to-day health care expenses not covered by Medicare in retirement. Women were less confident they could cover these costs in retirement (34 percent) vs. men (46 percent).
The study found that 80 percent of nonretired consumers who worked with a financial professional believed they understood how much their future health care expenses would be in retirement. In comparison, only 6 in 10 who haven’t consulted a financial professional felt confident they knew how much health care expenses would impact their retirement finances.
Overall, both retirees and nonretired consumers believe financial professionals can help consumers manage health care risks in retirement. And it appears financial professionals recognize the need for planning for health care costs in retirement. Recent Institute research finds 42 percent of financial professionals want training on health care planning to better help their clients.
Eighty percent of retired women currently collecting Social Security benefits took those benefits early and missed out on the increased income earned by delaying their claim. (Photo: iStock)
9. Women often regret not waiting to claim Social Security
Looking back, 17 percent of women who are currently drawing Social Security wish they could change their decision and file later, according to a Nationwide Retirement Institute survey conducted by Harris Poll. Of those who would not change their filing decision, 39 percent say an unforeseen life event compelled them to take it early, including unplanned health problems (17 percent).
On average women live longer, meaning they spend more time in retirement and often do so with less savings. Due to these factors, on average women retirees could spend 70 percent of their Social Security benefit on health care costs, the survey said. Women count on Social Security or will count on it to pay, on average, 56 percent of all their expenses in retirement. However, 80 percent of retired women currently collecting Social Security benefits took those benefits early, locking in a lifetime of lower income.
The online survey included 465 women over 50 who are retired or plan to be in the next 10 years. It found that of women currently collecting Social Security, only 17 (5 percent) maximized their monthly check by waiting to claim at age 70 or later.
“Too many women retirees have no retirement income outside of Social Security,” says Roberta Eckert, vice president of the Nationwide Retirement Institute. “And even for women that do, the fact that they live longer makes maximizing Social Security benefits extremely important.”
More than a third of women (35 percent) were kept from doing the things they wanted in retirement. Health care expenses in particular keep nearly one in four (24 percent) from the retirement they desired.
More than one in four women currently drawing Social Security (30 percent) say their Social Security payment is less than they expected. Only 13 percent of women say they received advice on Social Security from a financial advisor. However, nearly 9 in 10 women surveyed who work with an advisor (86 percent) say their Social Security payment was as expected or more than they expected.
“There are a variety of efficient filing strategies open to women — but too few seek professional advice from a financial advisor to take advantage of them,” says Kevin McGarry, director of the Nationwide Retirement Institute.