Retirement Nightmare: The Real Reason Half of Us Won’t Make It!

Every day in the United States, as reported by the U.S. Department of Health and Human Services, 10,000 individuals reach the age of 65. In the upcoming year, during what is termed “Peak 65,” this number is anticipated to surge to 12,000 daily, marking an unprecedented peak in the country’s 65-year-old population. A projected 20% of the nation’s population will be 65 years or older by 2030, signifying a growing concern about retirement preparations, even among older baby boomers who have already retired.

Over several decades, these workers constructed their retirement security on three fundamental pillars: employer-sponsored pensions, personal savings, and Social Security benefits. However, the retirement landscape has undergone significant and fundamental changes since then, and these days are long gone. In 1980, when a substantial number of baby boomers entered the workforce, a staggering 84% of private sector employees, as per the U.S. Bureau of Labor Statistics, reported having access to private retirement pension plans. Today, only 15% of private sector workers claim access to comparable defined benefit retirement plans.

Given that most individuals can no longer rely on traditional pensions and Social Security only replaces about 40% of pre-retirement income, it has become crucial to diversify one’s financial portfolio in preparation for an extended retirement period. Nevertheless, research from the Center for Retirement Research at Boston College suggests that as many as 50% of households are currently deemed “at risk” of being unable to maintain their desired lifestyle during retirement.

Whether you fall into the Peak 65 demographic or are considerably younger, it is never too early to initiate your retirement savings journey, and it is certainly not too late to start bolstering your nest egg. It is worth noting that approximately 58 million Americans, which equates to a third of the working-age population, have no retirement savings whatsoever.

The key is to commence your savings efforts as soon as possible, and taking incremental steps toward your financial goals is perfectly acceptable. To establish a well-rounded portfolio, it is advisable to include products from each of the following four asset classes (you don’t have to begin with all four at once; start with the option that seems least intimidating):

  1. Cash and cash equivalents: Assets that are low-risk and highly liquid, such as certificates of deposit (CDs), money market accounts, or short-term treasury bills. Initiating this process is straightforward, as CDs can be easily acquired during a routine bank visit.
  2. Equities (stocks): Equities offer growth potential but are accompanied by higher volatility.
  3. Fixed-income (bonds): Fixed-income investments provide greater stability and a consistent income stream but typically offer lower growth potential.
  4. Real assets (real estate, commodities): Real assets can hedge against inflation.

Some analysts predict that real estate assets may play a significant role in the years 2024 and 2025. According to AARP, more than half of individuals over 50 own 70% of the homes in the country, which might lead to a “silver tsunami” as baby boomers downsize, potentially saturating the housing market with over 30 million housing units and potentially causing housing prices to decline. 

Redfin reports that baby boomers hold $18 trillion in home equity, suggesting that homeowners with limited retirement savings may want to consider downsizing or selling their home to use some of the proceeds to fund retirement.

Retirement planning strategies have undergone significant changes for the Peak 65ers age group since they joined the workforce. Earlier, people relied solely on pensions. However, with time, there has been a shift towards the 60/40 investment model, which involves assigning 60% of funds to stocks and 40% to bonds. Additionally, employer-sponsored 401(k) plans have become more widespread, bringing further changes to retirement planning. 

Today, individuals have a wide array of options to explore when securing their retirement. Seeking guidance from a professional advisor can prove invaluable in navigating these options effectively.