Warning: I think I’m sounding a little snarkalicious today. I don’t mean to, but this subject is near and dear to my heart due to personal experience and to watching many of my loved ones struggle financially.
Okay, so I read an article on retirement this weekend that talked about how the fear of running out of money in retirement has been blown out of proportion. This article was written by a smart guy – a guy I admire who has done great things with his money. But his advice isn’t sound financial advice for most of the population, and this is why.
Some of his reasons for thinking that fear of running out were overblown were as follows:
- You’ll need less than you think
- You’ll adapt to different income levels
- You will find many ways to make money
- You have plenty of safety nets
Let’s address these reasons one-by-one based on the lifestyle of most people.
You’ll Need Less Than You Think in Retirement
Check out these facts from a recent article about retirement savings:
According to a detailed report by the Employee Benefit Research Institute (EBRI), many people are in fact very likely to run out of money in retirement.
- 83 percent of baby boomers in the lowest income quartile will run out of money in retirement
- 47 percent of boomers in the second lowest quartile will run out
- 28 percent of boomers in the second highest quartile will run out
- 13 percent of boomers in the highest income quartile will run out
Apparently, most people will not need less than they think in retirement, or there wouldn’t be such a high number of people who will run out of money in retirement.
The facts state that people are not saving enough, and thus, they are at HUGE risk of running out of money in retirement. On this recent Frugal Farmer post, Brad from Maximize Your Money shared the truth about people and their (lack of) retirement savings.
- More than a third of Americans have absolutely nothing saved toward retirement
- The average 50-year-old only has $60,000 saved for retirement. That’s nowhere near where they should be by that age if they were on track with retirement goals.
- Only 18% of American workers are “very confident” that they’ll have enough money for a comfortable retirement.
For most retirees, running out of money is a very valid fear and valid risk. Because they’re not saving enough, and because they’re spending more than they should (whether out of necessity our out of squander) they are indeed running out of money and this is a very real problem facing current and potential retirees.
The fact of the matter is that most people are not saving enough for retirement. They don’t have millions put away like the FI heros that we know and love do. Maybe it’s because they can’t put more away, or maybe it’s because they won’t put more away, but either way the end result is the same: They have less than they need during retirement.
You’ll Adapt to Different Income Levels
This piggybacks off of section one, but people obviously are not adapting to their lower post-retirement income levels, because again, if they were they wouldn’t be running out of money.
People are underestimating what they’ll need in retirement, especially when it comes to medical expenses. This is one problem.
The other problem, in case you haven’t noticed, is that Americans have a spending problem. Many are stuck in the YOLO, instant gratification mindset that siphons money from one’s checking account the way the government siphons our tax dollars.
Simply put, most people (remember that 76 of Americans have less than $400 in savings) are not conditioned/trained/disciplined to live within their means. And as someone who’s been there, done that, I can tell you that it takes a boat load of discipline to learn to do so. It’s not easy. For us it took years of overcoming the emotional roots of why we were overspending, and it took years of discipline to overcome the habit of overspending. At this point spending less is a habit, but it’s a habit that took years to develop, and most people aren’t willing to put in the time it takes to overcome these hurdles and learn to adapt to living on less, or else we’d all be millionaires.
You’ll Find Many Ways to Make Money
Yeah, unless you haven’t trained yourself to think like an entrepreneur. Or unless medical problems prevent you from working in retirement. Or unless the economy crashes. Or unless you’re not motivated to do so.
There are many, many reasons why post-retirement folks can’t or won’t find even one way to make money in retirement. Good idea. Just not reality for most people.
You Have Plenty of Safety Nets
With minimal savings and underestimated expenses, there aren’t many safety nets that can help for the long term. The Affordable Care Act (one safety net the article mentioned) is a train wreck, and we’ll see if the revised plan does any better, but I’m not counting on it. Also, insurance was recommended as a safety net. Can one who is struggling to put food on the table in retirement afford to dole out extra cash each month for an insurance policy?
I’m not trying to be a Negative Nellie here. I thoroughly admire and respect those folks who have achieved FIRE and are kicking it big time with their money.
But the fact of the matter is that that isn’t “most people”. The statistics show that most people are in a heap of financial trouble with student loans, consumer debt and a lack of retirement savings. And we can’t aid their disillusion by telling them that their fears of not having enough in retirement are overblown.
A better option is to live by example, help them face up to their financial shortcomings and give them the tips they need to improve their situation. You can’t make a horse drink, but you can lead him to water. That’s a better option than leading him to a country club in the desert, denying him entrance and letting him die of dehydration.