Almost two-thirds of retirees see a retirement crisis in the US

The “golden years” seem to be losing their luster for many retirees, as a new study by Clever Real Estate found that nearly two-thirds (63%) believe the United States is facing a retirement crisis. Many older Americans likely thought their retirement would look like their parents’ post-work years, full of travel and leisure. However, few are finding that to be the case.

“The idea of retirement is evolving as people live longer and healthier lives,” said Jean-Baptiste Wautier, Financial and Global Economic Policy Leader at Wautier Family Office. “Many individuals are extending their working years, either out of necessity or choice, leading to the rise of phased retirements, part-time work, and second careers.”

Rising costs on everything from groceries and gas to health care have put many older Americans in a pinch, and there’s an overarching worry that the government isn’t doing enough to help them. Over half of those surveyed said their current retirement plan doesn’t accommodate future changes in the economy, such as the high inflation rates the country has seen following the pandemic.

Considering that about 43% of retirees say they don’t have enough money saved for a comfortable retirement, the situation certainly feels dire. However, experts hesitate to call it an outright crisis and differ from retirees on possible solutions.

The Current State of Retirement

Most financial experts recommend saving 15% to 20% of your annual income for retirement, including employer contributions to a 401(k). With an average yearly salary of about $60,500, workers would need to save $9,000 to $12,000 annually throughout their employment to retire comfortably. The annual cost of retirement differs in each state, ranging from $58,190 in West Virginia to $129,296 in Hawaii.

In reality, the average retiree has only saved about $308,000 to see them through retirement, which can last 10 to 20 years. That leaves about $15,000 to $30,000 annually to live on, outside of any social security or pensions, or just $1,250 to $2,500 a month.

Government programs like Social Security are meant to provide some relief, but for how long is unknown. Projections suggest the Social Security trust fund will only be able to pay benefits in full through 2037, after which it can only pay 76% of the scheduled benefits. That’s troubling because Social Security is the only income source for about 20% of retirees.

Social Security currently pays an average of $1,976 a month, about $23,700 a year.

“The current Social Security system isn’t intended to cover all retirement expenses,” said Dr. Jay Zigmont, a Certified Financial Planner® (CFP®) and founder of Childfree Wealth®. “It was intended to supplement other retirement funds. It’s tough to live on Social Security alone.”

Health care is the largest expense for retirees. The average annual cost is $7,942 for those ages 65–74 and $8,145 for those 75 and up. That’s $661 to $678 a month, which doesn’t leave much room for other monthly expenses if your retirement savings are at the low end. Having Medicare helps, although the monthly premium will increase to $185 in 2025.

Should Retirees Be Worried? What the Experts Say

Experts agree that retirees should be wary about their finances, given the coming Social Security shortfall, low retirement savings, and rising costs. If it’s not quite a crisis, it’s certainly concerning.

“Some concerns may be overstated due to sensational media coverage or underutilized assets like home equity,” said Steven Kibbel, a CFP® and founder of Kibbel Financial Planning. “However, for those with low savings or reliance on Social Security, pessimism is indeed justified.”

While the exact amount will vary, most people can expect to need about 80% of their pre-retirement income each year after they stop working. So, if you earn $60,000 a year, expect to spend about $48,000 a year after you retire.

The general rule is that your retirement savings should be 10 times your income by age 67. Saving that much was likely more attainable for previous generations, who benefited from pensions, more reliable income streams, and shorter retirements.

Gen X is the first generation that most people will retire without a pension, Zigmont said. That means saving through a 401(k) or opening additional retirement accounts is primarily up to them. According to the Clever survey, almost half of retirees didn’t start saving for retirement until they were 40 or older.

Solving the Retirement Struggle

Retirees see a few ways to solve their struggles. Eighty percent of those surveyed believe the government should do more to help them, and roughly the same amount say retired Americans shouldn’t have to pay taxes. About a quarter suggest raising taxes on workers to support retirees. Many also believe they should get priority for government aid over working people.

Experts see other options for overcoming the challenges. Debra L. Morrison, a CFP® and financial coach at Women Navigating Finances, LLC, suggests raising contribution limits to Defined Contribution Pension Plans, IRAs, and Roth IRAs to entice taxpayers to save more money for retirement. She also said a .5% tax on the ultra-wealthy could shore up Social Security and Medicare’s long-term insolvency.

“In this way, our seniors could once again feel confident they can receive their Social Security benefits and affordably priced healthcare as they age,” she said.

In addition, Morrison recommends reducing the age of required minimum distributions (RMDs) to 68, which would fill the Treasuries’ coffers with additional tax revenue from wealthy and ultra-wealthy retirees. Exempting Social Security income from up to 85% taxation for individuals making less than $25,000 and couples making less than $75,000 could also help. Finally, she advises a tax of 100% of retirees’ Social Security benefits for individuals earning more than $1 million and couples earning over $2.5 million.

It’s Never Too Soon (or Too Late) to Grow Your Retirement Fund

Despite the challenges current retirees face, they can take steps to improve their finances. For instance, if their house is paid off, they can use a reverse mortgage to supplement their income. Other options include downsizing their home or moving to a less expensive city or state. Retirees can further save by using a discount real estate agent or negotiating their agent’s commission fees directly to keep more of their home’s profits.

Brian Rudderow, a real estate investor at HBR Colorado, said investing in a real estate investment trust (REIT) could provide a steady stream of passive income. Retirees should also consider investment options that offer tax breaks, such as multifamily properties or solar energy.

“The current state of retirement is objectively more challenging than what previous generations have faced, but that doesn’t mean that opportunities don’t exist,” he said.

“Retirees who are up to speed on the changing dynamic in the marketplace will come out ahead of those who remain overly pessimistic and fail to adapt to the current economic shifts we’re experiencing.”

Building additional income streams, paying down debt, and planning for increased healthcare costs now can help workers prepare for a more secure retirement. Kibbel also recommends waiting until age 70 to draw Social Security, significantly increasing monthly benefits.

Say your full retirement benefit starts at age 67 with a $2,000 monthly payment. Drawing Social Security at the earliest qualified age, 62, reduces your monthly payment to $1,400. However, if you can wait until age 70, you’ll draw $2,480 a month.

“While systemic changes are absolutely needed, individuals can take proactive steps now to enjoy a more secure retirement,” Kibbel said. “Having to constantly stress about finances in your ‘golden years’ can sure take the gold (and joy) out of retirement.”