US seniors risk outliving their money
By Donna Freedman
June 20, 2013

How much do we need for retirement? More than what we’re currently saving, apparently.

A new study from found that seniors in 48 states and the District of Columbia are at risk to outlive their retirement monies.

The golden years aren’t all that golden: Nationally, the average income of the 65-and-older crowd is only 57% of the money earned by those aged 45 to 64. [EXPAND Read more]

“By anybody’s definition, that’s just not enough,” says Mike Sante, managing editor at

“There’s no reason to believe that seniors are living high on the hog in this country. At least most of them aren’t.”

Researchers also compared the two groups’ median incomes with a specific number in mind: 70%, based on the notion that retirement income from all sources should total 70% of the salary you make during your last year or two of earning.

According to Sante, the retirees’ income would ideally be 70% or more of the still-working younger cohort. That’s because both middle-aged and elderly adults pay for many of the same resources, such as groceries, utilities and housing.

The magic number was found in just two states, Hawaii and Nevada, both of which were a hair over the 70% mark. Nineteen other states and the District of Columbia came in at 60% to 68% and the four lowest-ranking states (Massachusetts, New Jersey, North Dakota and Rhode Island) ranged from 45% to 49.5%.

“Many senior citizens are significantly underfunded and risk running out of money, especially since people are living longer,” says Sante.

More and more are retiring with still-unpaid mortgages, he adds, and many underestimate the cost of age-related health issues: “Anybody who thinks that Medicare (will pay) all their bills hasn’t been around anyone on Medicare.”

Bracing for a crisis
It’s tough to get by just on Social Security, and defined-benefit pensions are fading away. That leaves personal retirement planning and/or asset accumulation to make up the difference.

We’re not doing too well at either one. A recent study from the Employee Benefit Research Institute notes, among other things, that 57% of U.S. residents have less than $25,000 in total household savings and investments (excluding their homes). That’s up from 49% in 2008.

The Wall Street Journal sums up the EBRI study this way: Workers are saving too little to retire. In fact, only 66% of us are saving at all.

“Workers and employers in the U.S. are bracing for a retirement crisis, even as the stock market sits near highs and the economy shows signs of improvement,” The Journal notes.

“(Powerful) financial and demographic forces are combining to squeeze individuals and companies that are trying to save for the future and make their money last.”

Given rising life expectancies it’s very possible to outlive any money you’ve saved. Companies that still offer pensions will experience sympathy pains, since longer lives mean more stress on pension funds — as much as $97 billion worth in the coming years, according to The Journal.

A life-changing benefit
In a New York Times guest article, University of Chicago professor Richard H. Thaler proposed a relatively simple solution: Build a better workplace savings plan. He suggests a two-pronged approach:

Make payroll retirement savings universally available. Currently this is an option for about half of American workers (and only 42% in the private sector).

Make them automatic. According to Thaler, simple procrastination keeps about one-fifth of workers from enrolling in payroll savings even when offered employer matching funds. He believes employees should be enrolled automatically unless they specifically opt out.

The same inertia that now keeps people from opting in could keep future workers from opting out. Such automatic enrollment plans already exist, and companies that use them find that few employees make the effort to leave the program.

“The burden on employers would be tiny, and the benefit to workers could be life-changing,” says Thaler, a professor of economics and behavioral science.

Take charge of the future
Maybe you think you can’t afford to save for retirement on what you earn, especially if you have student loans or house payments.

But you can’t afford not to — and if you’re young you have time (i.e., compound interest) on your side. Even if you can save only a tiny amount, do it anyway and plan to increase contributions as you get raises and/or pay down other obligations.

Suppose you’re in your late 30s, 40s or (yikes) 50s and haven’t done much about retirement planning? Get going anyway, even if basic expenses are rising faster than your ability to earn. You may not make it to half a million, or even to $100,000, but every dollar you put aside today will make a big, big difference to the future you.

As I noted in “Is it ever too late to start saving?,” it’s terrifying (and at times paralyzing) to be in your late 40s with no savings at all. But retirement age is approaching, inexorably. You can’t wish it away. It’s crucial to start planning lest you hit 65 with little to no cushion.

No one will take care of the future you except the current you — and since the average Social Security payment is $1,266 per month, the future you will be very glad you bothered.

And if you do nothing at all? The future you will judge the current you. Harshly. [/EXPAND]