We are facing a real retirement crisis in this country. And, many Baby Boomers are not taking their retirement seriously enough. There’s an interesting philosophy about the best way to live: run out of money when you run out of steam. In fact, Stephen Pollan, renowned attorney, life coach, and personal finance expert, even wrote a book about it called, Die Broke. I truly believe that the goal should be to have enough to live a happy and giving life, then leave a financial legacy to your loved ones. Whatever your philosophy, who would ascribe to burying their head in the sand and ignoring what is really happening? Many retirees just don’t seem to know they are in crisis.
The Schwartz Center For Economic Policy Analysis at The New School recently released a shocking report. What is not a surprise is that in order to be able to support oneself in retirement, Baby Boomers are going to need a combination of Social Security, employer-sponsored retirement plans and personal savings. This report also shows that, “55 percent of households in which the head of the household is near retirement age (55-64 years old) will have to subsist almost entirely on Social Security income or will not be able to retire at all due to negligible savings.”
You will have to research your own eligible payments, but I want to just give a simple illustration of what a retiree could be looking at, if they really were relying on Social Security alone, as noted in the study above. An insured worker becomes eligible for Social Security retirement benefits when they are 62 years old. If 2015 was the year of eligibility, and that person had maximum-taxable earnings in each year since age 22 and retired at age 62, they would receive approximately $2,685.50 a month, or $32,226 annually.
Let’s see if your Baby Boomer parents can live on Social Security alone. Mortgages and rents can vary tremendously from region to region, as can the costs of independent living communities. A Place For Mom indicates that, “…actual retirement living costs for a one bedroom (home) can vary by as much as $5,000 (monthly) across the country, closely tracking regional real estate values and cost of living.” That would mean spending $60,000 annually on just housing. The Bureau of Labor Statistics’ Consumer Expenditures in 2012 report indicated that “Americans 65 years and older spent on average $40,410 after taxes on housing, transportation, food, health care and insurance.” By anyone’s measure, the vast number of Americans will not be able to live solely on Social Security.
Baby Boomers are denying the facts. “Rome is burning” as many retirees are facing a crisis of not having enough funds for retirement. Despite this fact, we now see their confidence levels increasing, even though the savings numbers don’t support their newfound joy. The Employee Benefit Research Institute released their 2015 Retirement Confidence Survey, and “The percentage of workers confident about having enough money for a comfortable retirement, at record lows between 2009 and 2013, increased in 2014 and again in 2015.” When asked about real savings, the numbers do not support this building of confidence. “A sizable percentage of workers (28%) say they have virtually no money in savings and investments…57 percent report that the total value their household’s savings and investments… is less than $25,000.”
So now what? Millennials, you may not know exactly what your parents financial circumstances are, but it’s a good time for you to have that conversation and find out. We are always uncomfortable having the “money-talk,” but we cannot wait any longer. Any hesitation may mean that it’s too late to change things, especially if your parents are “confident” about their retirement when they shouldn’t be. The problem may become yours, even though you didn’t create it. Start the conversation off by explaining that you are concerned about your parents living out their life the way they wish. You want to help them plan a wonderful retirement. You want them to look at it as not just retiring from something, but having something to retire to. This is the time of life for them to finally concentrate on themselves and do the things they never got a chance to do. Make it clear that the conversation is NOT about what is being left to you.
Make sure that your parents clearly explain what their wishes are, and they have taken into account that they may live a long life, but that they may not enjoy great health. Some of the questions to address may be: Where do they want to live? Have they begun that planning process? They need to consider the cost of such things as; housing, transportation, health care, insurance, travel, to name a few. What are their current financial circumstances? How much is saved? What is their debt? This is a tough one, but if you are engaged in this conversation, now is the time to ask if they have provided for their funeral costs. If not, you may be looking at an $8,000-$10,000 surprise, or more.
If you find out that your folks have not really provided for themselves, it is time to see if you can make accommodations to provide for them. Maybe they need to reduce their living expenses by moving in with you. Why not? They could reduce your childcare costs, or help around the house. They may have to plan to work beyond retirement and help to pay you rent. They could move in with friends to reduce their living expenses. In fact, I’m writing a book about this new retirement paradigm, so stay tuned.
The point is exactly what Dwight D. Eisenhower expressed when he quipped, “Plans are nothing; planning is everything.”
Neale Godfrey is the New York Times #1 Best Selling author of 27 books, and financial literacy curricula for kids and parents. She created the topic of “kids and money” while President of The First Women’s Bank when she opened up The First Children’s Bank, and an Institute for Youth Entrepreneurship in Harlem in 1988.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.