Career & Finance Fridays

“The more your money works for you, the less you have to work for money.” ― Idowu Koyenikan

Retirement is a topic that regularly makes headlines, and not all of them are encouraging. Americans are living longer than ever before. However, if you assume most people are saving more to prepare for their longer-term needs, you’d be mistaken. Here are some of the startling truths about retirement in the U.S.

Key Takeaways

• The post-career phase of your life could last a quarter-century or more.
• Social Security benefits alone are probably not enough to ensure a comfortable retirement.
• Many Americans have little to no retirement savings.
• Medicare will not cover the costs of assisted living or a nursing home.
• To make sure you’re saving enough, try to max out your annual contributions to your employer-sponsored plans and IRAs.

1. It Could Last Longer Than You Think

In a 2024 survey, the actual average retirement age is 62 and according to the Center for Disease Control and Prevention, the current life expectancy is nearly 77.5 in 2022 (latest information). However, for many, retirement will last much longer than 16 years. The average is skewed by the number of people who die relatively young.1

U.S. Centers for Disease Control and Prevention. “Mortality in the United States, 2022."

2

Consider this: a 65-year-old woman is estimated to live to 86.9 while a 65-year-old man is expected to live to 84.3.3 That’s why younger workers need to plan for two decades or more of income in retirement. And for current retirees, an ultra-conservative portfolio composed solely of bonds may not provide enough growth.

“While portfolios exclusively or primarily composed of bonds may seem safer than stocks with potentially lower downside risk short term, historically they have provided significantly lower overall returns long term. This can be cause for great concern in regard to keeping up with inflation or meeting desired asset projections for satisfactory income later,” says Daniel P. Schutte, MBA, founder and financial advisor, Schutte Financial, Denver, Colo.

“A broadly diversified retirement portfolio consisting of 40% large-cap U.S. stocks, 25% small-cap U.S. stocks, 25% U.S. bonds, and 10% cash has had a 98% success rate in lasting at least 35 years during retirement before running out of money. Diversification is a lifelong investing guideline—stay diversified in retirement too,” says Craig Israelsen, Ph.D., designer of the 7Twelve Portfolio, of Springville, Utah.

2. Social Security Falls Short

Most of the time, Social Security payments alone won’t be nearly enough to meet the basic needs of a retiree, let alone cover an unexpected emergency.

Important

In July 2024, the average monthly Social Security benefit for retired workers was $1,919.40, which comes out to $23,032.80 per year.4

“One of the big issues with Social Security is that it only provides a similar standard of living for those in the lowest quartile of income earners in the U.S. In other words, unless your household is earning less than $30,000 a year, most people will need to rely on some sort of personal savings in order to maintain their current standard of living in retirement,” says Mark Hebner, founder and president of Index Fund Advisors Inc., of Irvine, CA, and author of "Index Funds: The 12-Step Recovery Program for Active Investors."

This is where starting to save early can help, in particular, using tax-advantaged vehicles such as an individual retirement account (IRA) or a company-sponsored 401(k) plan.

3. Americans Are Way Behind on Savings

“Between two stock market crashes and not saving enough in the last 16 years, coupled with increased expenses and inflation, Americans are very far behind on saving for retirement,” says Carlos Dias Jr., founder and managing partner of Dias Wealth LLC in Lake Mary, FL.

As the American workplace turns away from pension plans, the onus is increasingly on workers to secure their own retirements. According to the Fed, in 2022 (the latest information available), the median retirement savings total for individuals ages 55 to 64 was $185,000. For those 35 to 44 years old, it's $45,000.5

4. Many Still Lack a Retirement Plan

It used to be that you could spend most of your career at one company and count on a pension once you retired. Relatively few workers in the private sector now can expect to get a pension, and the median private pension annual benefit for those who do is now only $11,040 in 2020 (latest information available).6

Unfortunately, many Americans aren’t replacing those pensions with a defined-contribution (DC) plan such as a 401(k). In March 2023 (latest information) there were 163 million active 401(k) participants, while the workforce includes approximately 290.6 million people—meaning roughly 56% of individuals are actively participating in a 401(k).7

$118,600

The size of the average 401(k) plan balance in Q4 2023.8

5. Staying in the Workforce

Given the fact that so many Americans are behind in their savings, perhaps it’s not surprising that many remain in the workforce well after reaching Social Security eligibility.

However, one key issue for many older people who are interested in working to supplement their Social Security is that they might not be able to find a job. The COVID pandemic hit older workers particularly hard. The average unemployment rate for those aged 55 and older was close to 8% in 2020.9

Those numbers have been steadily improving. By fourth quarter 2021, the unemployment rate for working people ages 55 and up was about 3%, less than half the rate one year before.10

6. Medicare Won’t Cover Assisted Living

Government data reveals that nearly 70% of individuals who reach age 65 will need long-term care at some point.11 The median cost of an assisted living facility was $5,350 a month in 2023, according to Genworth. It was almost twice that for a private room in a nursing home.12

What many elderly people don’t realize is that Medicare doesn’t pay most long-term care costs. It only covers up to 100 days of care at a skilled nursing facility and only if it was preceded by a hospital stay of three days or more.13 

If you’re not sitting on a sizable nest egg, that’s a good reason to start thinking about long-term care (LTC) insurance in your late 50s or early 60s.

How to Get on Track

Depending on how much progress you’ve made toward your own retirement goals, you may be feeling better or worse about where you stand. If you’re not quite as close to your target as you’d like to be, taking a second look at your retirement plan can help you pinpoint the gaps.

Start by trying to figure out just how much you’ll need for retirement, based on your current spending and the standard of living you want. Then look at your savings balances and how much you’re saving regularly.

Then consider your investments. Are you maxing out contributions to your 401(k) or 403(b)—if you have one? And if you do, are you saving enough to get the full company match? If not, think about increasing your contributions.

If you don’t have a retirement plan offered through your job, or you’re fortunate enough to max out your plan each year, you can supplement your savings with an IRA.

For 2024, you can contribute up to $7,000 a year to an IRA, or $8,000 if you're age 50 or older. The annual limits apply to all of your tax-advantaged retirement accounts.14

Is Social Security Enough to Live on?

Social Security payments are based on the average indexed monthly earnings over the highest-earning 35 years of your life.15 Depending on your profession during your career, your payment may be enough to live on if you keep your expenses low and don't run into any costly unexpected emergencies.

When Should I Start Investing in My Retirement?

Ideally, you should contribute to your retirement through employer-sponsored plans or IRAs as soon as you start earning money. With decades of time for interest to compound, you will have plenty of time to ride out market volatility.

How Should I Start Saving for Retirement?

The best way to start saving for retirement is to save money and place that money into a retirement account that will invest your funds. Such accounts include 401(k)s, 403(b)s, and traditional or Roth IRAs.

The Bottom Line

The days of employer-paid pensions are over, and the estimated average Social Security retirement benefit in July 2024 is $1,919.40 a month.4 With life expectancies growing because of better healthcare, retirement planning is essential.

If you have access to a direct contribution plan or an individual retirement account, start investing now. The power of compound interest can help you maintain a lifestyle you enjoy throughout your retirement years with careful planning and wise investing.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

1. U.S. Centers for Disease Control and Prevention. “Mortality in the United States, 2022."

2. MassMutual. "2024 MassMutual Retirement Happiness Study," Page 1.

3. Social Security Administration. "Benefits Planner: Life Expectancy."

4. Social Security Administration. "Monthly Statistical Snapshot."

5. Board of Governors of the Federal Reserve System. "Survey of Consumer Finances (SCF)."

6. Pension Rights Center. “Income From Pensions.”

7. U.S. Bureau of Labor Statistics. “Employee Benefits in the United States – March 2023.” Pages 5-7.

8. Fidelity. “Q4 2023 Retirement Analysis.”

9. U.S. Department of Health and Human Services. “2020 Profile of Older Americans,” Page 14.

10. U.S. Department of Labor. “U.S. Labor Market Shows Improvement in 2021, but the Covid-19 Pandemic Continues to Weigh on the Economy.”

11. U.S. Department of Health and Human Services. "How Much Care Will You Need?"

12. Genworth. "Cost of Care Survey."

13. U.S. Center for Medicaid and Medicare Services. "Skilled Nursing Facility Care."

14. Internal Revenue Service. “401(k) Limit Increases to $23,000 for 2024, IRA Limit Rises to $7,000.”

15. Social Security Administration. "Benefit Calculation Examples for Workers Retiring in 2024."

Money & Finances

What is one small step you can take this week to improve your retirement savings?