Many Americans are approaching retirement with inadequate savings. The fear of running out of money in retirement according to a study done by Allianz of 3000 baby boomers revealed that 60% feared running out of money more than they feared death. How real is this problem and what can you do if you’re approaching retirement in the next 10 years or less?
An average of 10,000 baby boomers is turning 65 years old every day. This trend will continue to do so for the next 19 years. Unfortunately, many baby boomers are unprepared for a comfortable retirement.
- Only 55% of Americans have some retirement savings
- 42% have less than $100,000 saved
- 24% have no retirement savings at all
The average social security check going to baby boomers is only $1317 per month, certainly not enough to live on no matter where you live. The reality is many baby boomers either can’t retire or will have some financial limitations in their retirement. For these, the most important factor is having a realistic perspective about lifestyle in retirement.
Did you know retirement as we’ve come to understand it today, wasn’t part of most human history? It wasn’t until the mid-1800s that certain municipal employees - firefighters, cops, teachers, mostly in big cities - started receiving public pensions. In the early-1900s several American companies started offering pensions to employees, and in 1935 the Social Security Act was passed offering benefits to people starting at age 65.
Prior to these events retirement simply wasn’t a notion anyone considered. People just expected to work until the end of their life. Family dynamics were also different. It was common for multiple generations to live together or very near to one another. It was expected that the responsibility of caring for aging parents and grandparents fall to the younger generation.
Things have changed for sure, and not necessarily for the better. A study by Creditcards.com in 2017 found that 3 out of 4 adults are still receiving some financial help from their parents. The help is primarily for living expenses or debts. This reversal of roles has only served to exasperate the financial condition of baby boomers as they approach retirement age.
Regardless of the factors that have contributed to baby boomers not having saved enough, it doesn’t change the reality that they will need to embrace a retirement lifestyle that’s manageable. If you’re approaching retirement with less than ideal savings, there are several things you can do to ensure you can live on less and don’t run out of money prematurely.
5 things you can do to cut cost and prepare for retirement
1. Downsize your house
Downsizing your house is a great way to save a bundle, even if your house is paid off. A smaller and lower priced home will cost less in taxes, utilities, insurance, maintenance, and upkeep. You could save hundreds of dollars per month by downsizing your house, while still having a comfortable and safe home to live in through retirement.
2. Downsize to one car
Transportation cost is the second biggest expense for retires. According to data from the Bureau of Labor Statistics, for adults 65 and older transportation cost represents 16% of retirement cost - even more than healthcare, which represents 13.4% of average retirement expenses.
Downsizing to one car will reduce cost in payments, insurance, maintenance, and gas. Some retirees may even be able to eliminate their cars altogether if public transportation is available. Using Uber, Lyft, a taxi service, or some ridesharing option in your community, can be less expensive than the cost of owning a car.
3. Eliminate all debt
Credit card debt, car loans, or any other type of debt is costly. As you approach retirement, it’s crucial that you remove any debt that will reduce your available income. You need to have flexibility in retirement and the more margin you can create the better you’ll be. If you currently have debt use the debt snowball plan to eliminate it.
4. Reduce insurance cost
Many people retire and continue to pay for high insurance policies. Dropping life and disability insurance, which you no longer need in retirement, can save you hundreds or thousands of dollars per year. Another way to save is to increase your homeowners and auto insurance deductibles to a higher amount. This will reduce your premium significantly.
5. Stop financially supporting your children
I know this seems kind of harsh, but you’ll need to stop helping your adult children pay for their bills if you plan to retire someday. You can propose alternative ways to help them that will benefit both of you.
Instead of shelling out thousands of dollars to help them cover rent or debt payments, invite them to live with you for a season so they can work and cover their expenses on their own. And, if they’re able, have them contribute for some of the household expenses such as food, utilities, or rent.
Embracing the right lifestyle that's healthy and manageable will help you do well when you retire. Cutting cost now will help you in being better prepared for when that time comes.
Remember, retirement is not a right, it's a privilege that most of our ancestors never had. The ability to work less as we age is a nice option if you can afford it. However, doing nothing is not good for anyone. Stay productive by considering an active retirement that includes a part-time job or volunteer service so you can continue to add value to those around you for years to come.