You’ve likely heard that, due to meager retirement savings, many working Americans will have to delay retirement. Unfortunately, according to a study by the Employee Benefits and Research Institute (EBRI), deferring retirement by a few years won’t be enough to ensure even a bare-bones retirement for millions of older Americans.
In fact, the study found that:
…the lowest-earning 25 percent of Americans would have to work until age 84 so that 90 percent of them would have even a 50-50 chance of having enough money to afford basic living expenses and out-of-pocket medical care.
That’s a lot of percentages, but the upshot is that even if they work until age 84, the majority of those in the lowest income quartile will only have a coin flip chance of having enough money to make it to the end. Obviously, if you require a higher likelihood of having enough money, then you significantly decrease the fraction of households that will achieve “income adequacy.”
For example, if we require a 70% likelihood, then just 40% of households in the lowest quartile will attain “income adequacy” by deferring retirement to age 84. And by changing to an 80% likelihood, that number drops to 1 in 7. Of course, when we’re talking about the lowest quartile, we’re talking about those earning $11,700 or less, so it’s perhaps not surprising that they’ll have trouble making ends meet.
At the other end of the spectrum, however, only 76% of those in the highest income quartile are expected to achieve the 70% likelihood of income adequacy if they retire at the traditional age of 65. This number falls to 61% if we increase the likelihood to 80%. Not pretty.
Of course, these numbers are based on averages, so the key here is to strive to be well above average. Don’t wait until the last minute. Instead, pay off your debts, start investing as early as possible, cut out unnecessary spending, and so forth. You should be taking advantage of any and all retirement accounts that are available to you. If you’re not able to max them out, consider finding ways to earn extra money.