According to the 2023 Northwestern Mutual Planning & Progress study,Americans report having less than $90,000 on average in retirement savings. Individual retirement accounts (IRAs) and 401(k) savings plans strive to compensate for the lack of traditional pension plans, however, many Americans have not been able to take advantage of these or cannot afford to save enough for retirement.
Key Takeaways
- Leaving the workplace at age 65 may mean funding over 20 years of retirement.
- Retirees often scale back their lifestyle or downsize to supplement retirement.
- Those without adequate retirement funds may need to continue to work past retirement age.
Funding Retirement
Retirement means the end of a steady income, which is why having a nest egg is important. Some financial experts say retirees need up to 80% of their pre-retirement income once they stop working. An annual income of $100,000 means $80,000 will be needed each year to maintain an individual's lifestyle. Without savings or a pension plan, retirees need to either continue earning money or cut back on their spending.
For those who enter retirement without saved cash, their only source of income is commonly Social Security. Most individuals aged 65 and older receive the majority of their income from Social Security and without the benefits, 38.7% of these adults may fall below the official poverty line.
Historically, many workers relied on corporate pension plans to fund their retirements but those plans have decreased in the past decades. Some government jobs still have pensions, however, those jobs may not have had Social Security taxes withheld, and decrease the retiree's Social Security benefit.
Relying on Social Security
With the average monthly Social Security retirement benefit check at $1,907 in 2024, it can be a big shock to those who earned more while working. On average, Social Security replaces just 40% of a retiree's pre-retirement earnings. Although there are ways to maximize it, Social Security still functions best as an adjunct to personal savings.
When considering healthcare costs like Medicare premiums, food and housing, personal debt, and other financial obligations many retirees carry, it's clear why living solely on Social Security may not work.
$1,907
The average monthly Social Security benefit in 2024.
Downsize
Without savings, it will be difficult to maintain the same lifestyle an individual had in working years. Some retirees make adjustments by:
Continue to Work
To keep up with basic expenses in retirement, many need an extra income stream. This could mean going back to work or getting a part-time job. The Internet makes it easier than ever for retirees to work remotely. According to AARP, retirees who work part-time, freelance, or do consulting work tend to increase their retirement satisfaction by providing a sense of purpose and community.
According to a survey conducted by ResumeBuilder, 12% of retired Americans say they are very likely or somewhat likely to go back to work in 2024.
How Can Retirees Use Their Home to Supplement Retirement Income?
Individuals who have not saved for retirement and who still own homes can turn to their homes as a source of income. For some, this could mean renting a portion of their space as a separate apartment. Another option is to take a reverse mortgage on a home, although doing so can be costly and complicated.
How Can Individuals Save More Toward Retirement?
How and where workers save can be as important as how much they save. Financial vehicles behave differently and are taxed differently so exploring diversification can help minimize the impact of taxes, market volatility, and inflation.
What Is the Average Retirement Age in the United States?
In 2023, the average age for men to retire was 65 and the average age for women to retire was 63.
The Bottom Line
Retiring without savings requires sacrifices and strategies. Social Security may not provide enough money for most people to maintain their pre-retirement lifestyles. For some, downsizing or working part-time can provide a supplement to Social Security.
FAQs
Consider part-time work in retirement. If you are able, planning to have a nontraditional retirement may be something you want to consider as well. Income from part-time work coupled with your Social Security benefit could be all you need to live comfortably. It will certainly make your savings go further.
How to retire if you have no savings? ›
You may need to make financial & lifestyle adjustments
- Set a detailed budget to minimize expenses. ...
- Downsize your home. ...
- Continue working. ...
- Take advantage of tax-advantaged retirement plans. ...
- Open a traditional or Roth IRA.
If you retire with no money, you'll have to consider ways to create income to pay your living expenses. That might include applying for Social Security retirement benefits, getting a reverse mortgage if you own a home, or starting a side hustle or part-time job to generate a steady paycheck.
What is the 4 rule for retirement savings? ›
What does the 4% rule do? It's intended to make sure you have a safe retirement withdrawal rate and don't outlive your savings in your final years. By pulling out only 4% of your total funds and allowing the rest of your investments to continue to grow, you can budget a safe withdrawal rate for 30 years or more.
Is 62 too late to save for retirement? ›
It is never too late to start saving money you will use in retirement. However, the older you get, the more constraints, like wanting to retire, or required minimum distributions (RMDs), will limit your options. The good news is, many people have much more time than they think.
What happens to retired people with no money? ›
If you retire without any savings, you may have to live on Social Security alone. You might struggle to pay your bills in that situation.
How many people retire with no savings? ›
20% of adults ages 50+ have no retirement savings, 61% worry they won't have enough at retirement, as per new AARP survey. Plus six tips to start saving now.
Which is the biggest expense for most retirees? ›
Housing—which includes mortgage, rent, property tax, insurance, maintenance and repair costs—is the largest expense for retirees. More specifically, the average retiree household pays an average of $17,472 per year ($1,456 per month) on housing expenses, representing almost 35% of annual expenditures.
What is the $1000 a month rule for retirement? ›
One example is the $1,000/month rule. Created by Wes Moss, a Certified Financial Planner, this strategy helps individuals visualize how much savings they should have in retirement. According to Moss, you should plan to have $240,000 saved for every $1,000 of disposable income in retirement.
What is a good monthly retirement income? ›
Many retirees fall far short of that amount, but their savings may be supplemented with other forms of income. According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.
Soon-to-be retirees can start receiving their benefits as early as 62 if they so choose — but Orman advises that it's better to wait to max out your monthly checks and benefit your future older self in the long term. “I encourage you to keep returning to this thought exercise,” Orman wrote in a recent LinkedIn post.
Can I retire at 60 with no money? ›
How to retire at 60 without running out of money? If you want to retire at 60 with the guarantee of never running out of money, you need to purchase an annuity. An annuity provides you with a guaranteed income for life. It's the only way you can be certain that the income will continue forever.
How to start over at 60 with nothing? ›
Start setting goals for the things you want to achieve in your new life. Think hard and reflect upon your life up till now, assess the things you never had the chance to do, and try to do them now. By setting achievable goals, you will not overwhelm yourself, and yet you will have something new to do from time to time.
What happens when you run out of money when you retire? ›
Running low on money in retirement, on the other hand, can mean a reduction to your current standard of living — but not necessarily a descent into full-on poverty. Americans can rely on at least one source of guaranteed income in later life: Social Security.
How much do I need to retire and never run out of money? ›
Some strategies call for having 10 to 12 times your final working year's salary or specific multiples of your annual income that increase as you age. Consider when you want to retire, goals, annual salary, expected annual raises, inflation, investment portfolio performance and potential healthcare expenses.
What if I haven't saved for retirement at 50? ›
Take advantage of catch-up contributions
If you didn't make saving for retirement a priority early in life, it's not too late to catch up. At age 50, you can start making extra contributions to your tax-sheltered retirement accounts (called catch-up contributions).
Can I retire at 65 with $500k? ›
The short answer is yes, $500,000 is enough for many retirees. The question is how that will work out for you. With an income source like Social Security, modes spending, and a bit of good luck, this is feasible. And when two people in your household get Social Security or pension income, it's even easier.
