Will seniors live like Mad Max after they outlive their money?

Posted on January 19th, 2014 by admin in Retirement

We have written extensively on this site about how to plan to withdraw money from your investment account over a long time interval. But we have not said anything about whether that withdrawn amount helps your standard of living. If all you have is $100,000, the 4% Safe Withdrawal Rate gives you $4000/YR to spend. Not much by current lifestyle standards. Some recent research shows that millions of people are in a situation like this. They may be heading for a Mad Max world of killing their pets and then their neighbors pets to survive. So what will the world of people look like when they’ve outlived their money? We need to consider this because a vast number of seniors will have grossly insufficient funds to ever retire, and they cannot work indefinitely. Here are some facts.

According to Carol Hymowitz in the Wall St. Journal on January 02, 2014:

Many graying boomers are less secure financially and have a lower standard of living than their aged parents. The median net worth for U.S. households headed by people aged 55 to 64 was almost 8 percent lower, at $143,964, than those 75 and older in 2011, according to U.S. Census Bureau data. Boomers lost more than other groups in the stock market and housing bust of 2008, and in the aftermath many also lost their jobs at a critical point in their productive years.

Implicit in the above is that all the households had an investment/retirement account. But if all households are included in the savings analyses, it turns out much worse. According to a 20 JUN 13 report from National Institute on Retirement Security (NIRI), www.nirsonline.org:

The average working household has virtually no retirement savings. When all households are included— not just households with retirement accounts—the median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households. Two-thirds of working households age 55-64 with at least one earner have retirement savings less than one times their annual income, which is far below what they will need to maintain their standard of living in retirement.

The NIRI Powerpoint summary report concludes:

(http://www.nirsonline.org/storage/nirs/documents/Retirement%20Savings%20Crisis/final_6-20_media_and_interested_parties_retirement_savings_crisis.pdf):

With limited retirement plan access and minimal retirement savings, majority of American households will not be able to their maintain standard of living after retirement, even if they work until age 67. Families need to save more and many will work longer, but cannot fill the gap alone. Working families need help from employers and policymakers to improve retirement readiness.

We now face a scenario never seen before: millions of middle class people who outlive their money who have been accustomed to a comfortable lifestyle will face an austere life just when they enter old age and have less physical and emotional capacity to continue or find sufficient work. Making this situation even more difficult is that fact that our government already is at the brink of failing to be able to continue paying meager social security benefits and medical costs for seniors, and even worse, those systems have trillions of dollars of unfunded liabilities already.

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