A recent study published by the National Institute on Retirement Security shared some startling information about the retirement readiness of American workers:
- One-third of all people between the ages of 55 and 64 haven’t saved anything for retirement.
- 38 million working age households in the U.S. have yet to start saving for retirement.
- The average retirement savings for people 10 years away from retirement is $12,000.
During my 25 years of working with retirement plan participants, I have met with many people who are close to retirement without enough money to retire. What do I tell them?
- You will need to work in retirement. Most individuals close to retirement with little retirement savings are not particularly surprised to hear this. Many have resigned themselves to working as long as they can. Very few, however, understand that they probably will not be able to continue to work for their current employer for as long as they wish.
- Debt is not your friend. Throughout their working lives, most of these individuals have not been afraid to take on debt. Financing purchases and spreading payments over many years were the only way they could afford to buy homes, cars, furniture, electronics, etc. However, their income during retirement may not be sufficient to fund loan payments.
- You may have to sell your house. Those that were able to purchase a home and accumulate equity may face the uncomfortable fact that one of their only resources to fund living expenses in retirement may be the equity in their home. Downsizing to an apartment to free up home equity may be a primary retirement strategy.
- Construct a budget. Most of the individuals I talk with have never created a household budget. When I ask them what they spend their money on, many say “it just goes.” Like most Americans, they live check-to-check. Many people are not financially confident or competent and the addition of a little structure, via a budget, can make a big difference in their lives.
- Make good decisions about Social Security. As the National Institute on Retirement Security study outlines, there are 81 different ways for married couples to collect Social Security benefits. Collecting as soon as possible may not always be the best strategy.
The situation is not hopeless for these individuals, however, time is not on their side. The sooner they begin a planning process, the better.
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Robert C. Lawton is president of Lawton Retirement Plan Consultants LLC in Milwaukee.
