Retiring into Poverty

[Tekward]

It's a sad development, 50% of Americans aged 55 and up will retire in poverty or near poverty.

https://www.marketwatch.com/story/half-of-americans-over-55-may-retire-poor-2020-10-01

“Our data is showing that, because of the COVID recession, about 50% of workers over the age of 55 will be poor or near-poor adults when they reach 65,” she said.

How poor is that? “A person who’s 65 will be near-poor or poor if they’re living on less than $20,000 a year,” she told me. “I think we could all agree that means chronic deprivation for the rest of your life.”

 

[kjpliny]

I believe this is a result of two key contributing factors:

1. Real inflation (not CPI) outpacing real wages.
2. People not saving enough (or poor investment choices).

What troubles me is that we can't control the first item, and the second item may still result in a low standard of living for even ardent savers if inflation spirals out of control and/or investments crash and stay down during retirement. If stocks and real estate crash and bonds/cash pay nothing, what's left to live off if the currency loses value quickly?

 

[Gumby]

Not earth-shattering news and not really related to COVID (or early retirement for that matter). We saw identical articles about this 11 years ago after the financial meltdown.

It has always been the case that if you have not saved your money and are going to rely solely on social security you will have a relatively low income in retirement. AARP says that the average individual SS check in 2020 is $1503 per month. https://www.aarp.org/retirement/soc...-answers/how-much-social-security-will-i-get/ So that's $18K per year for any individual, $36k a year for a couple. You won't be paying any federal income tax on that amount, nor any state income tax in most states. I'm sure that there are people on this board who could survive on that. (I'm not one of them).

It has also always been the case that if you lose your job in your late 50's, you'll have a hard time getting another one and if you have no savings you'll suffer until you can take SS.

 

[CardsFan]

Not earth-shattering news and not really related to COVID (or early retirement for that matter). We saw identical articles about this 11 years ago after the financial meltdown.

It has always been the case that if you have not saved your money and are going to rely solely on social security that you will have a relatively low income in retirement.

Bingo! The current "crisis" is always the problem. Not saving for the previous 20-40 years has nothing to do with it.

 

[braumeister]

MarketWatch looking for clickbait might have something to do with it.

 

[OldShooter]

Well, life is not fair. Nothing we can do about that.

Regarding "not saving enough" I am not judgemental on that. There are people on subsistence incomes, people who must support other family members (like parents) on their incomes, people with high medical expenses, ... Lots of reasons for that recent observation that 40% of Americans adults couldn't come up with $400 in an emergency. Then there are those who legitimately wasted their money, including sports stars, where I guess we could look down on them. But why? So we can feel superior? Man plans, and God laughs. Most of what DW and I have is probably more due to good luck than to wisdom, starting with being born to middle-class white families.

 

[Chuckanut]

Not earth-shattering news and not really related to COVID (or early retirement for that matter). We saw identical articles about this 11 years ago after the financial meltdown.

It has always been the case that if you have not saved your money and are going to rely solely on social security that you will have a relatively low income in retirement. AARP says that the average individual SS check in 2020 is $1503 per month. https://www.aarp.org/retirement/soc...-answers/how-much-social-security-will-i-get/ So that's $18K per year for any individual, $36k a year for a couple. You won't be paying any federal income tax on that amount, nor any state income tax in most states. I'm sure that there are people on this board who could survive on that. (I'm not one of them).

It has also always been the case that if you lose your job in your late 50's, you'll have a hard time getting another one and if you have no savings you'll suffer until you can take SS.

With that low of an income (18k), if a person is a homeowner, they might be eligible for a significant reduction in their property tax bill. By significant I mean over 50%.

 

[tmm99]

I agree with you, OldShooter. A lot of people only make minimum wage or near minimum wage all their lives. Just because we had smarts/education/good jobs and could save money, it doesn't mean everyone else could. Sure, there are people who blow the dough they don't have, but there are people who have worked hard all their lives and didn't blow the dough but are still struggling. This is nothing new, but I'm sure COVID has exasperated the situation.

 

[Aerides]

does the article spell out what changed - by numbers - pre and post covid? Is 50% that much worse than before? Couldn't see the delta in the article, which renders it drivel for me.

 

[pb4uski]

It seems to me that back 20+ years ago as defined benefit plans were being phased out in favor of 401K plans and the clear message was that the three-legged stool was going to be missing a leg that very few of my peers got the message and will have less of a retirement as a result

 

[Chuckanut]

bonds/cash pay nothing, what's left to live off if the currency loses value quickly?

One thing our fearless leaders have not taken to heart is that the [-]War on Savers[/-] ultra-low interest rates of today are taking a huge tole on those who did save money in their insured savings account. Alas, the accounts are not insured against inflation and Fed policies that toss the savers to the hungry dogs.

I remember when I figured I could count on 3-4% interest on my insured savings account and maybe as high as 6% on a five year CD when I retired. Had somebody told me I would be scraping the bottom of the barrel to find 1.6%, I would have thought the person to be a nut case.

 

[aja8888]

Bingo! The current "crisis" is always the problem. Not saving for the previous 20-40 years has nothing to do with it.

It's going to get worse with the current "war on savers" (ZIRP) and increasing
inflation.

(sorry Chuckanut, we posted about the same time).

 

[daylatedollarshort]

Low income retirees may also qualify for other programs - subsidized housing; SNAP; food pantry; discount public transportation passes; Medicaid; and discount utilities, Internet and phone services. The local senior centers here have close to free lunches, door to door bus service and activities every day of the week.

Our local area is expensive, but the services seem like they would be really good for low income seniors. Assuming a retiree didn't have subsidized housing, a room here might rent for $1K a month, but then with all the other programs most other expenses would be covered by assistance programs or very low cost.

 

[friar1610]

Well, life is not fair. Nothing we can do about that......

Most of what DW and I have is probably more due to good luck than to wisdom, starting with being born to middle-class white families.

In my (our) case, this is also true. My wife and I are in a pleasantly comfortable, if not extravagent, situation in our retirement. I can think of times years ago when I took the initiative to do something smart that contributed to our current situation. But I can think of just as many times I did something dumb and, in spite of it, ended up OK. Being born to the parents who raised me certainly set the table for whatever modest successes - financial and otherwise - i've experienced. Absent their influence, support and the education they provided me the results might not have been pretty.

 

[jim584672]

I spend at what would be considered poverty levels, but that is by choice. As long as you own your own housing it is doable. I do it because that is how things have been my whole life, so to me it is normal. When I see people who need $10,000 a month I just don't get it.

 

[MuirWannabe]

Not earth-shattering news and not really related to COVID (or early retirement for that matter). We saw identical articles about this 11 years ago after the financial meltdown.

It has always been the case that if you have not saved your money and are going to rely solely on social security you will have a relatively low income in retirement. AARP says that the average individual SS check in 2020 is $1503 per month. https://www.aarp.org/retirement/soc...-answers/how-much-social-security-will-i-get/ So that's $18K per year for any individual, $36k a year for a couple. You won't be paying any federal income tax on that amount, nor any state income tax in most states. I'm sure that there are people on this board who could survive on that. (I'm not one of them).

It has also always been the case that if you lose your job in your late 50's, you'll have a hard time getting another one and if you have no savings you'll suffer until you can take SS.

+1

The article blaming this situation on the Covid recession is ridiculous. Probably a particular view being pushed for I can’t imagine what reason.

 

[kjpliny]

One thing our fearless leaders have not taken to heart is that the [-]War on Savers[/-] ultra-low interest rates of today are taking a huge tole on those who did save money in their insured savings account. Alas, the accounts are not insured against inflation and Fed policies that toss the savers to the hungry dogs.

I remember when I figured I could count on 3-4% interest on my insured savings account and maybe as high as 6% on a five year CD when I retired. Had somebody told me I would be scraping the bottom of the barrel to find 1.6%, I would have thought the person to be a nut case.

What we need is a huge class action lawsuit against the Fed to reclaim our lost purchasing power and lost interest. Nobody elected them, and they are actively trying to hurt savers and low income individuals by their policies.

 

[street]

Interesting!
Pensions do make a difference there is no question about it. The company I worked for still offers a pension and a 401K that they contribute to also. My son has been with a company for 17 years now and they have a pension and also have a 401K that they contribute to also.
I still beleive people that don't have a pension and are savers and plan for retirement can still be wealth at retirement age. You have to be disciplined and be frugal and be a saver and you can be a millionaire and retire high on the hog.

 

[jazz4cash]

does the article spell out what changed - by numbers - pre and post covid? Is 50% that much worse than before? Couldn't see the delta in the article, which renders it drivel for me.

I think the point is low wage earners in their 50’s losing their jobs due to Covid are not going to be rehired and will not be able to build up savings for 10 yrs leading up to 65. I think I know many folks living on 20k that would not consider themselves impoverished. They are in LCOL areas, some have paid off homes or subsidized senior housing and decent health.

 

[LRDave]

Well, life is not fair. Nothing we can do about that.

Regarding "not saving enough" I am not judgemental on that. There are people on subsistence incomes, people who must support other family members (like parents) on their incomes, people with high medical expenses, ... Lots of reasons for that recent observation that 40% of Americans adults couldn't come up with $400 in an emergency. Then there are those who legitimately wasted their money, including sports stars, where I guess we could look down on them. But why? So we can feel superior? Man plans, and God laughs. Most of what DW and I have is probably more due to good luck than to wisdom, starting with being born to middle-class white families.

Agree for us as well......

 

[Aerides]

I think the point is low wage earners in their 50’s losing their jobs due to Covid are not going to be rehired and will not be able to build up savings for 10 yrs leading up to 65. I think I know many folks living on 20k that would not consider themselves impoverished. They are in LCOL areas, some have paid off homes or subsidized senior housing and decent health.

I get the "point" but if you're going to say "now it's 50%!!!!" then at least you should say, previously it was 46%, or whatever the number was. Not stating the amount of the difference is bad writing, at best.

 

[OldShooter]

I spend at what would be considered poverty levels, but that is by choice. As long as you own your own housing it is doable. I do it because that is how things have been my whole life, so to me it is normal. When I see people who need $10,000 a month I just don't get it.

Recounted by John Bogle:

At a party given by a billionaire on Shelter Island, the late Kurt Vonnegut informs his pal, the author Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch 22 over its whole history. Heller responds, “Yes, but I have something he will never have . . . Enough.”

IMO, "enough" is not a number. It is an attitude.

 

[Chuckanut]

II can think of times years ago when I took the initiative to do something smart that contributed to our current situation. But I can think of just as many times I did something dumb and, in spite of it, ended up OK.

My smart story occurred about 1998 when I was offered a huge increase in salary to return to IT and fix COBOL programs so that we all didn't die in terror when the year 2000 hit. It was so very tempting. But, I also knew that I would pay for that extra money by giving up years of service towards my pension. I kept the long haul in site along with my teaching job, and skipped an opportunity to make 6 years worth of income in 2-3 years. Ultimately, that allowed me to retire early with my pension and be eligible for cheaper medical insurance.

My dumb story was in 1978 when I let a friend talk me into putting money down on a house that was too far from work. I broke the sales agreement and had to forfeit my deposit which was about 4 months gross pay. Tuition in the school of hard knocks.

 

[timo2]

One other item that relates to the inability of people to save, in addition to subsistence wages, is health care. Many people (or family members) develop terrible health problems that in the USA system knocks them out of the retirement savings race permanently.

Being able to retire early reminds me of an American football team's ability to win the Super Bowl: it often comes down to the team with the least number of injured players.

 

[Bigdawg]

It seems to me that back 20+ years ago as defined benefit plans were being phased out in favor of 401K plans and the clear message was that the three-legged stool was going to be missing a leg that very few of my peers got the message and will have less of a retirement as a result

There has never been a time in the USA where even 50% of the population received a defined benfit plan (pension). Way down now but it was never the majority.