Retirement in America - A Post-Recession Overview of Today's Retirement Realities

In all the devastation caused by the recent recession, one bright spot is the number of Americans paying more attention to their retirement planning. We’ve all heard the ugly stories of people forced to remain working because their retirement investments disappeared, and of people forced to retire early when they lost their jobs and couldn’t find another, but for those of us who aren’t quite at retirement age yet, there are some definite lessons to be learned, if we’re willing to ask ourselves the hard questions.

There’s plenty of bad news to go around (and you need to hear it, unfortunately), but there’s also good news for the millions of Americans far behind on their retirement planning. With a little planning and execution, anyone can retire without slashing their lifestyle to the bone.

The Bad News
This should come as no surprise to people in their 30s and younger: Social Security may well be bankrupt before you retire, and you can’t assume you’ll receive any benefits. For Americans in their 40s and 50s, you’ll probably receive Social Security benefits, but they may be substantially slimmer when you receive them, and the eligibility age could be older. The bottom line for all Americans is not to count on receiving benefits, because there’s no predicting how the government will resolve the looming Social Security deficit.

Which makes it even scarier that over half of working Americans don’t even have $25,000 in retirement savings.

Clearly we’ll all need more than $25,000, but how much will you actually need? Retirement planners recommend putting aside enough to live for 25 years of retirement, and while that might sound high, would you rather underestimate? You’ll want a nest egg that you can draw on for at least 20 years.

If you’re feeling daunted about now, you’re probably ready to hear some good news.

The Good News
Even though most Americans are not very far along in their retirement planning, most of them (74%) do reach their financial goals by the time they retire, which keeps them living the lifestyle they want through their retirement. A growing number of economists are starting to view people in their 20s and 30s as biologically hard-wired to focus their energy on finding a mate, establishing a nest by either buying or signing a long term rental contract, and having/rearing offspring, which is a spend-heavy period in our adult lives. Despite what parents, grandparents, financial advisors, and accountants tell them, people in their 20s and 30s just don’t save very much money, and they never have, as far as we can tell historically.

Middle-aged adults, however, tend to have higher incomes and decreasing expenses, plus a sharper focus on their impending retirement needs, leading them to put aside much more money for retirement investing. What they lack in time for their investments to mature, they recovery in savings ability and innate willingness.

Older Americans, who have actually retired (or semi-retired), see an even sharper drop in spending. On the biological side, most older adults feel far less urge towards consumption and active spending, and on a societal side they no longer have expenses relating to children, employment tax, budgeting for savings, large debts (if they’re lucky), and work (commuting, clothes, equipment, etc). Further, many empty-nesters downsize to a rental contract on a small apartment or condominium. Every single spending category for older adults drops substantially, with only one exception: health care. The average American’s spending between the ages of 64-75 drops by a whopping 46%.

There’s another group worth mentioning as well: young retirees under 60 who have found recurring forms of income that don’t require ongoing work. The overwhelming majority of these young retirees have invested in either creating an entrepreneurial business or investing in real estate and signing rental contracts to generate income. While not everyone has the necessary entrepreneurial spirit and risk acceptance, those who do can find ongoing passive income by starting their own business, whether traditionally or by investing in some rental contract real estate.

While retirement does require planning, you won’t have to work forever just because you’re 37 and only have $15,000 put aside for retirement. Create a budget that allows you invest sufficiently for retirement, set a target retirement age, consider investing in income-generating assets, talk to a sharp retirement advisor, and most of all, stay firm in your resolve to reach your target retirement savings.