Like many people out there, I didn’t spend much time in my early adult years thinking about retirement planning. Instead, I was more concerned with paying down my debt and making ends meet. There were times I even joked that I would never be able to afford to retire, so there was no point in starting. However, once I became established in my career and later got married, we started to look at things more seriously. As I took my first steps in planning for the future, I discovered many facts about retirement that were very surprising.
7 Facts About Retirement Planning That May Surprise You
1. Many Americans are getting a late start on investing.
I was surprised to learn that I wasn’t alone in my procrastination to invest. After reading a recent Gallup poll from 2021, the survey revealed that 21% of Americans haven’t begun saving for retirement. To break down this figure even further, 42% of adults between the ages of 18 and 29 reported that they had no retirement savings while 26% of people between 30 and 44 said the same.
Although these facts about retirement planning are concerning, I was more shocked to learn how little people are saving. Even those who have started retirement accounts are not contributing as much as they have in the past. The average retirement account balance for people 35-44 years old was only $37,000 while those 45-55 years old averaged $82,600. The numbers are far behind what financial planners recommend for their clients.
2. Debt was a major factor in the delay to save for retirement.
This next fact isn’t as surprising as it is depressing. Many of us have struggled with debt which is precisely why I waited to invest as well.
Among the participants in the survey, 28% of people said they didn’t make enough to start investing. An additional 24% responded that healthcare costs kept them from saving while 23% said that credit card debt was a major roadblock in their savings goals. However, only 17% attributed the delay to the repayment of student loans.
Personally, I thought this last group would be higher. But any way you look at it, these statistics show that debt is a serious problem in our country and a major reason why people are struggling to reach financial independence.
3. The pandemic has significantly impacted people’s retirement accounts.
Although many people probably already know this, the pandemic has taken a serious toll on people’s finances. Between layoffs, reduced hours, the decreased ability to work, and other economic concerns, Covid-19 has made difficult situations even harder to manage.
Considering how many people already live paycheck to paycheck, the increased job insecurity has stretched many budgets to their limits. And when you are struggling to survive, it is no longer feasible to save a portion of your monthly salary.
Since 2020, nearly 27% of Americans said they either decreased the amount or stopped contributing to their retirement savings altogether. Another 21% said they had to dip into their retirement accounts as well. While there are regional differences in these trends, it demonstrates how much the global economy and individual finances have been impacted during the pandemic, setting many people back several years from their savings goals.
4. The cost of long-term care is increasing every year.
It’s no secret that healthcare is getting more expensive for Americans. But, we saw the highest year-over-year increase in these expenses between 2020 and 2021.
Health experts estimate that 7 out of 10 people from the baby boomer generation will need long-term care. As this group reaches retirement age, the demand for assisted living and nursing homes continues to grow. However, many prefer to use caregivers and remain in their own homes.
This has led to a 10.64% increase in the cost of homemaker services and a 12.5% in health aid services. These figures are further supported by the fact that the average wages increased by more than 5% for those who provide these services. Furthermore, the national average rate for assisted living also went up by 4.65%.
While some of these increases are attributed to inflation, the hard truth is that people are living longer. And the older people get, the more health complications they develop. But another fact that people overlook is that we have an aging population and younger generations are reproducing enough to replenish the workforce. This means expenses will only continue to increase, and we will likely have to rely more on foreign labor to fill this need in the years to come.
5. Approximately 35% of Americans don’t have access to company-sponsored retirement plans.
In years past, pension plans were a standard company offering. However, benefits packages have been severely watered down. Some may offer contribution matching or employer-sponsored 401(k)s. But, 35% of Americans said they have never participated in these plans while an additional 41% said they didn’t currently have access to them.
One reason is that many companies restrict these plans to full-time employees. This has left many part-time and self-employed workers at a disadvantage. Therefore, they have to be resourceful and use other investment vehicles like a Simple IRA to fill this void in their portfolios.
6. The retirement age is steadily increasing.
Another one of the eye-opening facts about retirement that the Gallup poll reported is that the current median age for retirement is 62. This is the highest it has been in 20 years. However, what’s more worrying is that this number increased to 64 when they surveyed non-retirees.
This indicates that people expect to work longer. This is partially due to people living longer, which also means they have to make their savings last longer. But, the survey also revealed that 57% of respondents plan to work during retirement to mitigate these expenses. Among those who plan to work past the age of 65, 20% will stay on as full-time workers. However, 37% plan to at least keep part-time hours because they expect that their retirement benefits won’t be enough to support them.
7. An astounding 42% worry that they will outlive their retirement savings.
This last fact is probably the most terrifying to me. Although no one can predict the future, 42% of Americans fear that they will outlive their retirement savings. An additional 73% believe that Social Security benefits won’t even be an option for them when they retire.
Some formulas can help you estimate how much you will need to save to sustain your current lifestyle after you retire. But if inflation rates continue to spike for years to come, this could undermine savings plans and leave you vulnerable later in life.
Preparing to Retire
When I first started thinking about retirement planning and doing the math, I had a panic attack realizing how many years I had lost. And reading these facts about retirement planning didn’t help much. But the best piece of advice I received is that it’s never too late to start. Once I enlisted the help of a financial advisor, he helped me set my savings goals, get back on track, and keep pace with my long-term retirement goals.
Fortunately, I already had the good sense to pay off my debts before 30, so now I’m focusing my energy on investment strategy. For me, this includes creating a diverse portfolio with different types of accounts that offer various tax advantages at different stages in life. If you are struggling like I was, have an honest discussion with your financial advisor about your concerns. They can help you determine the best course of action for your retirement planning goals and financial situation.