When retirement age is ten, twenty, or thirty years away, it’s easy to have an “I’ll do it later” attitude when it comes to preparing financially for the golden years. However, the truth of the matter is that you can’t afford not to save for retirement. Check out this true story on what life is like for retirees who only have a small social security or pension to live on during their retirement years...
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The following post is by MyPFJourney staff writer, Laurie Blank. Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.
You’ve likely read the many personal finance articles sharing concern for people who are vastly under-prepared for retirement.
When retirement age is ten, twenty, or thirty years away, it’s easy to have an “I’ll do it later” attitude when it comes to preparing financially for the golden years.
It’s also easy to have an “it’ll all work itself out” mindset or an “I just can’t afford to save for retirement” outlook.
The truth of the matter is that you can’t afford not to save for retirement. Check out some true-story info on what life is like for retirees who only have a small social security or pension to live on during their retirement years.
Life on Little or No Retirement Savings
As of December 2016, the average check for Social Security earners was $1,368. If you were among 62-year-olds receiving Social Security benefits, your average check was $1,076.70.
If you’ve got less than a year’s salary saved for retirement expenses, you’re likely going find yourself struggling to make ends meet.
And you’re certainly not going to have much extra to afford life’s little luxuries.
So, what is life like for those living on Social Security benefits?
I’ll start by sharing the story of a woman I know who lives on Social Security and not much more. This woman was a stay-at-home mom until the age of thirty-five, when she was forced back to work after a divorce.
A Real Life Story of Life With Little Retirement Savings
The non-college-degreed woman worked doing what she could, saving what should could afford to on her $15-an-hour-ish salary.
Today, she is 72 and retired, and earning $780 per month in Social Security benefits. Her retirement savings is dwindling quickly: there’s roughly $25k left in her IRA account.
How does she spend her money and survive? By the skin of her teeth.
Her saving grace is her also-retired husband. A second marriage for both, they’ve chosen to keep their finances separate and split expenses.
Since he makes more than she does, he pays two-thirds of their rent, groceries, and other joint expenses, and she pays one-third.
Of her $780 paycheck, $420 goes each month to cover her share of the rent, utilities, groceries, and other household expenses.
That leaves her with $360 left to spend during the month. That $360 covers every other expense she has:
- Car insurance, gasoline, and car repairs/maintenance
- Out-of-pocket medical costs
- Extras, such as eating out, entertainment and haircuts
- Gifts for kids and grandkids
- Any other non-joint expense
As is evident, this leaves my friend on a very tight budget. She meticulously tracks every dime and sets strict budget amounts for every category.
Because she is so meticulous with her budget, she usually has a few dollars left over every month and sets it aside in savings for any unexpected expenses.
However, the real hindrance in her budget – as it is for many retirees – is her out-of-pocket medical costs.
Every month, she has to take between $500 and $1000 out of her IRA to cover miscellaneous shortages and 5 different medicines she needs to treat Epilepsy, a seizure condition she’s had since she was a child.
Without insurance and online prescription drug order savings, she’d pay over $1500 per month out of pocket for the medicines alone.
A Real Life Story of Life With Little Retirement Savings
- This real-life story is of a 72 year old retiree. She earns $780 per month in Social Security and only has $25k left in her retirement savings.
- Shared household expenses consume $420, leaving $360 for everything else, the biggest of which being out-of-pocket medical costs.
- Needless to say, it's a very tight budget and not easy.
What Happens When Health Fails?
The good news for this woman is that she is in relatively good health. She and her husband live in a 55+ apartment for able-bodied adults.
However, if she were ever in a situation where she needed to live in assisted care, things would turn ugly really quick.
Since her husband has little savings as well, he couldn’t help her out.
Her IRA monies would go first, and likely be gone within six months if she went to live in assisted care today.
From there, she would be transferred to a government assisted care facility. I’m not sure if you’ve ever visited the senior care facilities for those with no retirement savings, but suffice to say, most are not optimal living quarters.
What Happens When Health Fails?
- Luckily, the woman in this real-life story in fairly good health. This means she can live independently, reducing cost significantly.
- However, if/when a move to assisted care is required, her current retirement savings and earnings would be gone within 6 months.
- Living in a gov't assisted care facility would be required in the long-term.
What You Might Have to Live Like if You Haven’t Saved Enough for Retirement
You might have to live quite differently than you live now if you don’t have enough saved for retirement. You might have to:
- Live with roommates or live in a very small apartment
- Drive your car into the ground or depend on public transportation
- Live on a super strict budget with little or no room for extras
- Depend on state or county assistance to afford to live
- Keep on working even into your 70’s and 80’s
- Deal with medical conditions you can’t afford to get treated
- Face homelessness or other less-than-optimal conditions because of a lack of funds.
Living on Little or No Retirement Savings is NOT Fun
Does this woman’s super strict budget and edge-of-disaster financial situation scare you? Good. I hoped it would.
You deserve to have a comfortable life during retirement, even if you can’t buy everything you want or do everything you wish.
Luckily, my friend on the super strict retirement budget has a great attitude. She’s never had much, so life for her in retirement isn’t that much of a sacrifice.
She drives a modest paid-for 2004 car that she bought new and puts about 2,500 miles a year on. It still looks and drives beautifully.
She doesn’t travel or spend much on herself. She’s generous within reason and values time with loved ones over material possessions.
But, I imagine most of us (myself included) would have a really tough time surviving on that type of a budget in our retirement years.
Living on Little or No Retirement Savings is NOT Fun
- This real-life story woman's super tight budget and edge-of-disaster financial situation is scary - plain and simple.
- Because everyone deserves to have a comfortable life during retirement (along with some degree of dignity), it's imperative to start saving at least a little bit of money as early as you can.
- Action Step - One of the best ways to grow your money for retirement is by opening up a Traditional or Roth IRA and investing religiously in passively managed index mutual funds and ETFs. Two favorite places to do this are Vanguard and Betterment.
Conclusions
Do yourself a favor and start increasing your retirement savings today. Cut expenses, get out of debt and save, save, save so that your life in retirement isn’t riddled with financial problems. Start today.
Are you on track to be well-prepared for retirement?
Share your experiences by commenting below!
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