According to the 2023 Northwestern Mutual Planning & Progress study,Americans report having less than $90,000 on average in retirement savings. Individual retirement accounts (IRAs) and 401(k) savings plans strive to compensate for the lack of traditional pension plans, however, many Americans have not been able to take advantage of these or cannot afford to save enough for retirement.
Key Takeaways
- Leaving the workplace at age 65 may mean funding over 20 years of retirement.
- Retirees often scale back their lifestyle or downsize to supplement retirement.
- Those without adequate retirement funds may need to continue to work past retirement age.
Funding Retirement
Retirement means the end of a steady income, which is why having a nest egg is important. Some financial experts say retirees need up to 80% of their pre-retirement income once they stop working. An annual income of $100,000 means $80,000 will be needed each year to maintain an individual's lifestyle. Without savings or a pension plan, retirees need to either continue earning money or cut back on their spending.
For those who enter retirement without saved cash, their only source of income is commonly Social Security. Most individuals aged 65 and older receive the majority of their income from Social Security and without the benefits, 38.7% of these adults may fall below the official poverty line.
Historically, many workers relied on corporate pension plans to fund their retirements but those plans have decreased in the past decades. Some government jobs still have pensions, however, those jobs may not have had Social Security taxes withheld, and decrease the retiree's Social Security benefit.
Relying on Social Security
With the average monthly Social Security retirement benefit check at $1,907 in 2024, it can be a big shock to those who earned more while working. On average, Social Security replaces just 40% of a retiree's pre-retirement earnings. Although there are ways to maximize it, Social Security still functions best as an adjunct to personal savings.
When considering healthcare costs like Medicare premiums, food and housing, personal debt, and other financial obligations many retirees carry, it's clear why living solely on Social Security may not work.
$1,907
The average monthly Social Security benefit in 2024.
Downsize
Without savings, it will be difficult to maintain the same lifestyle an individual had in working years. Some retirees make adjustments by:
Continue to Work
To keep up with basic expenses in retirement, many need an extra income stream. This could mean going back to work or getting a part-time job. The Internet makes it easier than ever for retirees to work remotely. According to AARP, retirees who work part-time, freelance, or do consulting work tend to increase their retirement satisfaction by providing a sense of purpose and community.
According to a survey conducted by ResumeBuilder, 12% of retired Americans say they are very likely or somewhat likely to go back to work in 2024.
How Can Retirees Use Their Home to Supplement Retirement Income?
Individuals who have not saved for retirement and who still own homes can turn to their homes as a source of income. For some, this could mean renting a portion of their space as a separate apartment. Another option is to take a reverse mortgage on a home, although doing so can be costly and complicated.
How Can Individuals Save More Toward Retirement?
How and where workers save can be as important as how much they save. Financial vehicles behave differently and are taxed differently so exploring diversification can help minimize the impact of taxes, market volatility, and inflation.
What Is the Average Retirement Age in the United States?
In 2023, the average age for men to retire was 65 and the average age for women to retire was 63.
The Bottom Line
Retiring without savings requires sacrifices and strategies. Social Security may not provide enough money for most people to maintain their pre-retirement lifestyles. For some, downsizing or working part-time can provide a supplement to Social Security.
FAQs
The Bottom Line. Retiring without savings requires sacrifices and strategies. Social Security may not provide enough money for most people to maintain their pre-retirement lifestyles. For some, downsizing or working part-time can provide a supplement to Social Security.
How to retire if you have no savings? ›
You may need to make financial & lifestyle adjustments
- Set a detailed budget to minimize expenses. ...
- Downsize your home. ...
- Continue working. ...
- Take advantage of tax-advantaged retirement plans. ...
- Open a traditional or Roth IRA.
Retirees who haven't saved enough often need to downsize their homes or work longer than they planned. Your family might feel responsible for helping you if they see you're struggling with money in retirement. Retirement should be something you enjoy, but it's hard to do that if you're under financial stress.
What are my options if I have no 401k at work? ›
The most obvious replacement for a 401(k) is an individual retirement account (IRA). Since an IRA isn't attached to an employer and can be opened by just about anyone, it's probably a good idea for every worker—with or without access to an employer plan—to contribute to an IRA (or, if possible, a Roth IRA).
What is the 4 rule for retirement savings? ›
The 4% rule limits annual withdrawals from your retirement accounts to 4% of the total balance in your first year of retirement. That means if you retire with $1 million saved, you'd take out $40,000. According to the rule, this amount is safe enough that you won't risk running out of money during a 30-year retirement.
What happens to retired people with no money? ›
Having no savings means that you will be forced to rely on your Social Security benefit for income in retirement. According to the Social Security Administration (SSA), among elderly Social Security beneficiaries, 12% of men and 15% of women rely on Social Security for 90% or more of their income.
How many people retire with no savings? ›
About 1 in 4 have no retirement savings, according to research released Wednesday by the organization that shows how a graying America is worrying more and more about how to make ends meet even as economists and policymakers say the U.S. economy has all but achieved a soft landing after two years of record inflation.
What is the average Social Security check? ›
Social Security offers a monthly benefit check to many kinds of recipients. As of May 2024, the average check is $1,778.24, according to the Social Security Administration – but that amount can differ drastically depending on the type of recipient. In fact, retirees typically make more than the overall average.
What if I run out of money in retirement? ›
If you run out of money in retirement, you may need to rely on family members or government programs for financial assistance. You may also need to reduce your standard of living or make significant lifestyle changes.
How many people regret not saving for retirement? ›
The study found that 57% of participants regretted not saving more, 40% regretted not buying Long Term Care (LTC) insurance, 23% regretted that they did not delay claiming social security benefits, 33% regretted not having purchased lifetime income payments, 10% expressed regret for having to depend financially on ...
The Bottom Line. In a 401(k) vs. Roth IRA matchup, a Roth IRA can be a better choice than a 401(k) retirement plan, as it typically offers more investment options and greater tax benefits. It may be especially useful if you think you'll be in a higher tax bracket later on.
What is a pension vs. retirement? ›
What is the difference between a 401(k) and a pension? A 401(k) is an employer-sponsored retirement account that allows an employee to divert a percentage of his or her salary—either pre- or post-tax—to the account. A traditional pension plan offers retirees a fixed monthly benefit for the rest of their lives.
What can I do with my 401k while unemployed? ›
Depending on your financial circ*mstances, needs and goals, you may choose to roll over to an IRA or convert to a Roth IRA, roll over an employer-sponsored plan from your old job to your new employer, take a distribution, or leave the account where it is.
What is the $1000 a month rule for retirement? ›
One example is the $1,000/month rule. Created by Wes Moss, a Certified Financial Planner, this strategy helps individuals visualize how much savings they should have in retirement. According to Moss, you should plan to have $240,000 saved for every $1,000 of disposable income in retirement.
Which is the biggest expense for most retirees? ›
Housing—which includes mortgage, rent, property tax, insurance, maintenance and repair costs—is the largest expense for retirees. More specifically, the average retiree household pays an average of $17,472 per year ($1,456 per month) on housing expenses, representing almost 35% of annual expenditures.
What is a good monthly retirement income? ›
More? Financial planners often recommend replacing about 80% of your pre-retirement income to sustain the same lifestyle after you retire. This means that, if you earn $100,000 per year, you'd aim for at least $80,000 of income (in today's dollars) in retirement.
Is 40 too late to start saving for retirement? ›
If you're starting to save for retirement at 40, that's not ideal, but it's also far from being too late.
What happens when you run out of money when you retire? ›
If you run out of money in retirement, you may face financial hardship and reduced quality of life. You may need to rely on family members or government programs for financial assistance, reduce your standard of living, or make significant lifestyle changes.
What if I haven't saved for retirement at 50? ›
Take advantage of catch-up contributions
If you didn't make saving for retirement a priority early in life, it's not too late to catch up. At age 50, you can start making extra contributions to your tax-sheltered retirement accounts (called catch-up contributions).
How much do I need to retire and never run out of money? ›
If you are looking for a quick way to get a ballpark figure of how much you'll need, the rule of 25 times is helpful. The 25 times rule states that you need to save 25 times your annual expenses to retire.
