Retirees May Need to Live on Less, Work Longer and Save More

According to a recent article on, Americans have not saved enough to provide for their retirement.1 Contributing factors include longer life spans, retiring earlier, less generous pensions, and greater health expenses. The article states that there are only a few possible solutions to this coming crisis. Americans must work longer, live on less and save more prior to retirement.  Other options include tapping into one’s home equity via a reverse mortgage or downsizing to a smaller home.

In the 1960s, the average length of retirement was 13 years. Today, people are typically retired for 20 years. People are also retiring sooner than they were in the 1960s which adds to the total length of retirement.

For many people, social security benefits are their main source of income during retirement. Social security was designed so that workers would be able to take out in benefits what they paid in over the course of their working career. However, over time this system has changed and people who retire early are receiving far more in benefits than they paid in, which is throwing a wrench in the system. The article indicates that social security will run out by 2033 if the current system continues. There have been several attempts to modify the social security system over the years. The formal retirement age is rising to 67, and those who retire earlier will receive lower payments. Social security recipients are also now taxed more heavily than they were just 30 years ago.

Workers in previous generations often had employer paid pension plans. Many pension plans have now been replaced by 401(k)s which have a higher investment risk than pensions. According to the article, the total amount that is contributed to 401(k)s is low, only about 9% of workers’ annual salary. Most households approaching retirement have only $111,000 in their 401(k) accounts, not nearly enough to afford retirement.

Many workers will need a plan to supplement their retirement income. It’s always a good idea to meet with a financial advisor prior to retirement to ensure you are on the right track. If retirement is around the corner and workers don’t have enough saved, there are some options that may help.

Working longer can be a significant help in saving for retirement. By working longer, not only can you receive larger social security benefits than if you’d retired sooner, but worker longer also gives you the opportunity to add extra funds to personal savings. Some Americans aren’t ready to fully retire and choose to ease into retirement by working part time for a few years. Even part time earnings can benefit retirement savings.

According to the article, many retirees live on about 75% of their pre-retirement income. Work related expenses like gas and car insurance for transportation normally decrease after retirement. Ideally, retirees have paid off their mortgages and can focus on paying down other debt, like car payments or credit card bills. When working full time, the convenience of eating out regularly and having a housecleaner or gardener may be worth the extra expense. However, new retirees may find they have the time and energy they didn’t have before to handle cooking and home maintenance, and can save a considerable amount of money doing those things themselves.

One of the most impactful changes begins in educating younger workers about financial health and retirement. Saving for retirement is often easier if started early on. Workers who begin saving at 25 will need to save 12% of their annual income in order to retire at 65. If those same workers wait until they are 45 to start saving for retirement, they will need to save 35% of their income.

For workers who are facing retirement in the near future and haven’t saved enough, there are a couple potential options.  Homeowners can sell their home and downsize to a less expensive property and save or invest the remainder. Another option would be to stay in their home and get a reverse mortgage loan. Reverse mortgage loans are available to seniors age 62 and older who have significant equity in their homes. A reverse mortgage allows homeowners to access a portion of the equity in their home and can be a helpful way to supplement their retirement income.  Typically a reverse mortgage does not become due as long as the borrower lives in the home as their primary residence and meets all the loan obligations.

To learn more about reverse mortgage loans or to speak with an advisor today, call 866-751-6105.