Longer Lives Equal Empty Pockets: What’s the Solution?

I shudder when I think about how much shorter life spans used to be. One hundred years ago, in 1919, men lived to an average age of 54 and women to 56, according to research from the University of California Berkeley’s demography program. That is depressingly short! As I’m sure most people do, I feel fortunate to live during an era that offers better medical care and the opportunity to enjoy more decades of quality time with loved ones and life experiences.

Here’s the downside to the reality of lengthening life spans: People can’t afford to live as long as they do today.

It seems nearly every day I see a new article or press release about how unprepared Americans are for retirement. And much of that lack of preparation has to do with the high amount of money needed to pay for today’s long lives, and the uptick in expenses that will hit many people during their retirement years. Monthly rent payments in assisted living facilities add up fast for people who can no longer live in their own homes, and according to Fidelity, the average couple requires $285,000 for health care in retirement.

Last week, Bloomberg reported that according to a new report from the World Economic Forum, people in the U.S., Europe, Australia and Japan are likely to run out of money about one decade before death, based on the rate their retirement account balances are currently growing.

That’s a really scary thought, especially because the last 10 years of life, I imagine, would be the worst possible time to be broke. You can handle things like a crappy apartment, cheap mattress and ramen noodle diet in your 20s, but not in your 80s and 90s when your whole body probably hurts and comfort should be a priority.

Here are a few more frightening findings that indicate retirement won’t be as relaxing as it should be for a lot of people:

• A Gallup poll revealed 46% of workers who are not yet retired believe they’ll be financially strapped during retirement. That compares with 36% of workers who believed that 15 years ago.
• Based on research conducted by the investment app STASH, 39% of Americans are counting on social security to fund their retirement, despite the fact that the future of social security is uncertain.
• Millennials are particularly clueless when it comes to retirement planning, according to STASH. The company said 59% of millennials think winning the lottery is a reasonable retirement plan (huh?), 48% would start investing for retirement if they only had more knowledge about how to do so, and 76% are living paycheck to paycheck – something that greatly hinders their ability to save.
• Many not-yet-retired workers are under the false impression that they can dictate exactly when they retire. According to research from Prudential, 51% of retirees retired earlier than planned, and less than half of them did so by choice. Unexpected events like layoffs, health issues and a family member’s need for care can force people into an early retirement, meaning they won’t have as much time as they thought to save.

The only clear path to increasing your retirement preparedness is to spend less, save more, and if you can, make more – and do so more aggressively the closer you are to retirement age. Fidelity recommends having the equivalent of your annual salary saved up by age 30, six times your salary by 50, and 10 times your salary by 67. So if you make $50,000 a year, you should have $500,000 saved by age 67.

But for a lot of people, especially that unfortunately large chunk of the population living paycheck to paycheck, reaching those goals is basically impossible. Reducing your expenses in order to save that much would likely require a major lifestyle downgrade, or an investment of time and money (something many people don’t have to spare) in an educational program that could lead to a higher-paying job. And for those who are late to the saving game and creeping close to retirement age, there just isn’t enough time for them to build that kind of nest egg.

Pinching pennies throughout life in anticipation of retirement isn’t always the smartest idea, either. I recently read a press release from Keystone Wealth Partners that described how some retirees who scrimped and saved their entire lives are now having a hard time spending money to enjoy their retirement, because “they have been so programmed during their working lives to save every penny until the day they die.” I would agree that in this case, going to extremes isn’t healthy. The goal of saving for retirement should be to plan adequately without sacrificing life’s experiences that you may only be able to enjoy when you’re young.

So what are people who find it difficult to save at all – let alone become extreme savers – to do? One option that’s gaining popularity is to retire to a place where the cost of living is much cheaper. Big city-dwellers can save by moving to small town America, but the more exotic plan is to head for a new country. A recent GOBankingRates article, “The 50 Cheapest Countries to Retire to,” suggested places like Sri Lanka, India and Malaysia, where the average monthly rent ranges from $225 to $400.

But how realistic, or even appealing, would it be to leave the familiarity of your own community for a place where you’ll likely experience extreme culture shock and may not speak the language? Minus the super adventurous types and people with solid ties to a foreign country, retiring abroad is probably a joke of an idea for most Americans. And if people need to uproot themselves like that in order to afford retirement, there’s something wrong with the system here.

There’s no easy solution to the retirement planning dilemma, but what this troubling news about the lack of preparedness says to credit unions is that there is a major opportunity to help. Personalized guidance, resources for saving and investing, and strategies for increasing income are needed – and must be provided early in life.

Retirement planning may be just one of many financial challenges members face, but if they put it on the back burner for too long, they may start wishing they had been born in the 1800s.

Natasha Chilingerian is managing editor for CU Times. She can be reached at nchilingerian@cutimes.com.