The State of Retirement in America

retirement factors

With COVID finally loosening its grip on Americans and our economy, I think I sometimes hear a collective sigh of relief as I go about town. Mask mandates are being lifted, restaurants are opening up to 100% capacity, and summer has arrived just in time to help us return to a sense of normal. However, not everything will completely revert back to our pre-COVID life. Deciding when to retire is one example of an event that probably won’t look normal for a lot of folks going forward. And while our current state wasn’t caused solely or directly by COVID, the pandemic has made the retirement decision a bit more challenging for many.

You know, many pre-retirees found themselves laid off or furloughed as the pandemic started last year. For some, this meant tapping into their retirement savings to replace their salary and pay the bills. Being jobless also meant taking a break from contributing to their retirement plan, which often included giving up the company match. This, along with numerous other factors, caused many folks to postpone their planned retirement date.

And while COVID has certainly had an effect on many retirement plans, there are other factors that are also causing folks to re-think that magical day when they leave the workforce behind and begin the next phase of their lives. So, this week with our time together, I’d like to discuss a few of these to help you better understand some key challenges to a successful retirement.

To begin with, even before COVID hit, Americans were woefully unprepared financially for retirement. According to a 2020 TransAmerica Center survey₁, fifty-eight percent of retirees have a current financial strategy for retirement – but only 18 percent have it in writing, while 40 percent have a plan that is not written. Many retirees (42 percent) do not have any financial strategy for retirement. Also, only nine percent of retirees frequently discuss retirement savings with their family and friends. Forty-five percent occasionally do so, while 46 percent never do so. 

Not only are many Americans not planning enough, they just don’t have enough saved to actually fund their retirement at the same level as their working years. For example, for Americans between ages 55 and 64, the median retirement savings was just over $107,000, according to a 2017 report from the Government Accountability Office (GAO)₃. The GAO notes that this amount, which may sound significant, would only translate into a $310 monthly payment, and only if it was invested in an inflation-protected annuity. It’s extremely challenging to set a retirement date if you don’t have a plan to get you there, or the funds to keep you there.

Another factor to consider is life expectancy – these days, retirement is lasting much longer than prior generations. While the “average” life expectancy is 78.7 years old, it’s becoming more common for many retirees to live into their 80’s and 90’s. And statistics show that the older you live, the longer you’ll continue to live. According to the Social Security Administration, a healthy 65-year-old woman has a very good chance of living to age 86, and a 65-year-old man has a good chance of reaching age 84₂.

While living longer may seem great, it costs more. Not only will you have your normal living expenses for more years, but you will also likely see an increase in your health care expenses. It’s just natural that as we age, our bodies need more care, and this can get costly. For instance, there is a 70% chance that an American age 65 or older will need long-term care at some point₄, according to the U.S. Department of Health and Human Services. If that involves an assisted living facility, those costs can be incredibly high, and Medicare will not cover them. The median cost per month for an assisted living facility is $4,051 and it’s more than double that for a nursing home. That doesn’t include other healthcare costs. This is why many older adults opt for long-term care insurance in their 60s.

Thinking that Social Security will be enough? You should think again. According to the Social Security Administration, benefits were never intended to replace 100% of your working salary. In fact, they are meant to replace roughly 40% of your income needs. To make matters worse, the Social Security trust fund is rapidly being depleted, and by 2034 it’s estimated that it will be able to pay out only 75% of planned benefits. That means that people already taking money from it may see a drop in payments, and new retirees may have trouble getting any money at all. Part of the reason for this is an increase in older adults. By 2035, the number of Americans 65 and older is expected to increase from about 56 million today to more than 78 million₅. Thus, more people will be pulling money from the total fund, but fewer people will be paying into it. If you don’t have a company pension plan to supplement Social Security, then it’s up to you to come up with additional sources of guaranteed income to help fund your retirement. 

While all of this may seem scary, it doesn’t mean it’s impossible to ever retire. It just takes deliberate and careful planning. I remember when I was a kid, hearing my grandmother say to me, “You know Jeffrey, money isn’t everything, as long as you have your health”. To which my grandfather replied, “Your grandmother is right – money isn’t everything, but try living without it!” So, plan well, save more, and retire with confidence, because it can be done!

Have a wonderful July 4th, a wonderful time to reflect on the liberties and freedom’s we have in the greatest Nation of earth. 

And as always – be vigilant and stay alert, because you deserve more!

Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, Mansfield. Jeff can be reached at article is intended to provide general information. It is not intended to offer or deliver investment advice in any way. Information regarding investment services is provided solely to gain a better understanding of the subject of the article. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy will be profitable. Market data and other cited or linked-to content in this article is based on generally-available information and is believed to be reliable. Cutter Financial does not guarantee the performance of any investment or the accuracy of the information contained in this article. Cutter Financial will provide all prospective clients with a copy of Cutter Financial’s Form ADV 2A and applicable Form ADV 2Bs. Please contact us to request a free copy via .pdf or hardcopy.  Insurance instruments offered through CutterInsure, Inc. 1. 2. 3. 4. 5.