Household of 55 to 64 year olds = $120,000 net worth

[ch12]

http://www.today.com/money/how-rescue-your-retirement-55-2D11603747

The typical household made up of Americans in the 55-to-64 age range has accumulated only enough retirement assets — $120,000 — to produce $400 to $500 of income a month to add to Social Security payments, according to the Federal Reserve's Survey of Consumer Finances.

One of their suggestions to bridge the gap between the cash flow of drawing down your savings and Social Security? Just keep working!

[frugalecon]

Sadly, I think many of the members of this generation will have no choice but to continue working, if their health permits. (It won't for a lot, unfortunately.). My sister-in-law is in this group, and has no assets nor sufficient income to cover her expenses. Without a subsidy from her 80-year-old father, she would be unable to pay her bills. It makes me worry that there will be uncomfortable conversations when she looks around to identify which of her siblings have staches.

[SisterX]

It's sad how little people of that age have saved, but I do think the advice is pretty sound.  The FIRST thing they start with is talking about reducing expenses.  Most articles like this ignore that and go straight to "work until you die".  Even after this article mentions working longer, they go back to a reduction in expenses by downsizing.  How is that antimustachian? 

[footenote]

I am of this generation. The vast majority of my peers have not saved even $120k. This is depressing. As I noted in a different thread, at least this article is an honest mainstream media advice to reduce expenses.... ! #sad

[oldtoyota]

http://www.today.com/money/how-rescue-your-retirement-55-2D11603747

The typical household made up of Americans in the 55-to-64 age range has accumulated only enough retirement assets — $120,000 — to produce $400 to $500 of income a month to add to Social Security payments, according to the Federal Reserve's Survey of Consumer Finances.

One of their suggestions to bridge the gap between the cash flow of drawing down your savings and Social Security? Just keep working!

Sadly, that doesn't take ageism into account.

[ch12]

It's sad how little people of that age have saved, but I do think the advice is pretty sound.  The FIRST thing they start with is talking about reducing expenses.  Most articles like this ignore that and go straight to "work until you die".  Even after this article mentions working longer, they go back to a reduction in expenses by downsizing.  How is that antimustachian?

I'm on board with the Mustachian messages in the article. I think that the monthly cash shortfall of $2,700 after changes still is pretty scary. It was ludicrous to tell someone that's it's fine to have that kind of gap.

The Center projects that, using the profile above, you will need a monthly income of $5,500 to maintain your lifestyle. But your investments and Social Security will only be producing $2,200. That's a gap of $3,300. Here's the trick: If you reduce your spending by an additional $500 a month now, you'll close the gap by $600 to $2,700, because you've reduced your needs by $500 and socked away enough to add $100 to your monthly income through investment gains. The biggest difference comes not from the investments you make, but from the reduction in spending.

The article goes on to tell you to wait to retire until you are 65 or 70.

In the example above, working in the same job for another three years, until you are 65, reduces your gap to $1,900 a month.

What if you're burnt out? If you start planning now, you may be able to find a middle road, a second career into which you can transition in your early or mid-60s. In addition, if you delay taking Social Security, the government will increase your monthly benefit. If you are 55 (born in 1958), delaying retirement until age 70 will increase your monthly Social Security benefit by about a quarter, so that if you were set to get $1,000 each month, you'll get $1,267 instead.

I just find the idea that you can earn 100k/year and only set aside $500-600 per month. Really?! I earn a fraction of that and I put away more than that in my 401k every month. I am 22.

[Jamesqf]

I'm on board with the Mustachian messages in the article. I think that the monthly cash shortfall of $2,700 after changes still is pretty scary. It was ludicrous to tell someone that's it's fine to have that kind of gap.

What seems scary/ludicrous to me is thinking of $2700/month as a shortfall.  For me, it's rather more than my total spending - and once I have the house paid off, which will happen around typical retirement age, spending will drop another $800+ per month.

[ch12]

I'm on board with the Mustachian messages in the article. I think that the monthly cash shortfall of $2,700 after changes still is pretty scary. It was ludicrous to tell someone that's it's fine to have that kind of gap.

What seems scary/ludicrous to me is thinking of $2700/month as a shortfall.  For me, it's rather more than my total spending - and once I have the house paid off, which will happen around typical retirement age, spending will drop another $800+ per month.

Did you read the article? I'm wondering if you misunderstood my intent. They have $2200 a month in cash and they need $3300 more (the starting shortfall) to hit their monthly expenses of $5500

Believe me, I don't spend $2700 a month either.

[Jamesqf]

Did you read the article? I'm wondering if you misunderstood my intent. They have $2200 a month in cash and they need $3300 more (the starting shortfall) to hit their monthly expenses of $5500

Yes, I read it.  Maybe my comment wasn't clear: my mind was boggling at the idea of a single person thinking they have to spend $5500/month in retirement to maintain a "lifestyle".

The Center projects that, using the profile above, you will need a monthly income of $5,500 to maintain your lifestyle. But your investments and Social Security will only be producing $2,200.

I manage to get along just fine with monthly spending in the close neighborhood of $2200, despite being the sole support of a couple of dogs and a horse.  Seems that example case (like most of the 55-64 group) has a really simple way out of his/her financial mess: just change the damn lifestyle.

[ch12]

Did you read the article? I'm wondering if you misunderstood my intent. They have $2200 a month in cash and they need $3300 more (the starting shortfall) to hit their monthly expenses of $5500

Yes, I read it.  Maybe my comment wasn't clear: my mind was boggling at the idea of a single person thinking they have to spend $5500/month in retirement to maintain a "lifestyle".

The Center projects that, using the profile above, you will need a monthly income of $5,500 to maintain your lifestyle. But your investments and Social Security will only be producing $2,200.

I manage to get along just fine with monthly spending in the close neighborhood of $2200, despite being the sole support of a couple of dogs and a horse.  Seems that example case (like most of the 55-64 group) has a really simple way out of his/her financial mess: just change the damn lifestyle.

The average American in that age range is an allegory about lifestyle inflation.

[MrsPete]

I don't think this problem is confined to people in this age group.  It's just more evident for them because they're on the doorstep for retirement, and they aren't prepared.   

I think the article addressed the problem of "You are here, how should you proceed?" Pretty well.  Obviously those of us who are younger and who began saving younger can expect much better . . . But their advice of, Keep working 'til a fairly traditional retirement age of 65-70, Travel but do it in the off-season, and so forth isn't bad . . . If that's the reality with which you are forced to live with. 

Something I'm seeing my mother's generation do -- and she's a little older than this target group -- is a Reverse Mortgage.  I personally know a couple people who have done this, and one lived literally only two months after embarking on this deal. 

[Zamboni]

^From what I understand, a reverse mortgage is generally not a good deal.  I would view it as a last resort.

[cats]

I don't think this problem is confined to people in this age group.  It's just more evident for them because they're on the doorstep for retirement, and they aren't prepared.   

Ditto.  I definitely see people in my age group who are clearly spending at a level that isn't leaving much over for savings.  This year at work our health insurance plan is having a big shakeup where we are switching over to a plan that has a higher deductible (but a much smaller hike in premiums).  Still, the out of pocket maximum for an individual is $2500.  For a family it is twice that.  People are going crazy saying that there is no way they can keep $5k set aside for medical expenses.  Most of my co-workers are earning high five or low six figures a year, so you'd think keeping a stash of $5k around might not be that overwhelming a task.  But apparently it is...

[chicagomeg]

Makes me proud of my parents, who make about $45k/year and have about that much saved up now. They will live comfortably on SS after paying off their self built house several years ago and use the 401k as an emergency fund over the years. Who knows what all these people making 2 and 3 times what they make are doing.

[LalsConstant]

What a silly article.  $5500 a month?  Really?

Google tells me that the average retired worker gets a bit over $1200 a month.  Okay.

So you get another $400 a month from your 401k.

$1600 a month is plenty.  I could do that now if I didn't live in the city and I'm very very wasteful compared to most people who post here.

On top of that most of these people have their house paid off.  Bloody hell.  That replaces the need for hundreds or thousands of dollars a month of income right there.  Even if not, when you can live anywhere because you don't care about employment, you can get the cheapest rate possible.

[No Name Guy]

Why is anyone shocked at this?  55-64 is the heart of the most selfish generation (on average - not all individuals are this way) this nation has ever seen, the baby boomers.  Me, me, me, now, now, now...house as ATM, bigger, more, more more...selfishness writ large. 

Time is long past for the boomers to lay in the bed they made.  Welcome to poverty boomers....you EARNED it.

[jrhampt]

My parents are in this age bracket and I WISH they had a $120k net worth.

[MrsPete]

^From what I understand, a reverse mortgage is generally not a good deal.  I would view it as a last resort.

Oh, I totally agree . . . but I think it's one of the ways people in my parents' generation will "make ends meet".  Most of them have paid-for houses -- many of them big, nice houses -- but as a group, they're short on retirement funds.  Many of them will choose to go the reverse mortgage route instead of cutting back on expenses. 

[footenote]

Or they will use reverse mortgage instead of selling, downsizing and investing the difference. I think that's a much more sensible way to access house equity (well, I would, since I'm doing it next year!), but it's also a lot more effort. I also think many older folks put off that step until they are so infirm that moving is a big physical burden. So a reverse mortgage ends up being "easier."

[Zamboni]

^I'm right there with you on the house down sizing being a much better call than the reverse mortgage.  I will do it as soon as the children are safely on their own. 

[Jamesqf]

^I'm right there with you on the house down sizing being a much better call than the reverse mortgage.

That depends on just what a "house" is to you.  If it's just a place to live, fine.  If it's the garden that you've spent decades creating, it's a different story.

[Zamboni]

I hear what you are saying as I planted a bunch of saplings at my last house.  Sometimes I even go by there just to admire how big they are getting.  But the tress don't really care if I'm residing in the pile of bricks nearest them.  And you are right, I don't get very attached to things, not even living plants.

[ChiStache]

I wonder how this study takes into account the older Americans who have work place pensions. All of the more senior folks I work with will receive an (in my view) very generous pension. The younger folks at my work aren't eligible for pensions, but if we were, I know I might not be saving in retirement accounts at all.

This article indicates that 17.5% or workers have a pensions. http://articles.washingtonpost.com/2013-03-06/opinions/37497878_1_defined-benefit-pensions-retirement-plans-retirement-security

Might that be taking the average savings number down?

[Jamesqf]

But the tress don't really care if I'm residing in the pile of bricks nearest them.  And you are right, I don't get very attached to things, not even living plants.

If I could move to a place with a similarly-established garden, I might do it, because it's not so much an attachment to the particular garden, as wanting to enjoy the benefits of having a garden.  As for instance the cherry trees I planted not long after I first moved here produced their first decent crop last year, more than a decade later.  The quince bear more each year; another decade or so and I hope the walnuts, hazelnuts, and much else will be producing...  And then there are the flowers &c that are just for visual & olfactory interest.

[MrsPete]

Or they will use reverse mortgage instead of selling, downsizing and investing the difference. I think that's a much more sensible way to access house equity (well, I would, since I'm doing it next year!), but it's also a lot more effort. I also think many older folks put off that step until they are so infirm that moving is a big physical burden. So a reverse mortgage ends up being "easier."

Yeah, I can see that it's "easier", but it's a pretty expensive choice. 

And then there are the situations like the nice old man across the street from us:  He did a reverse mortgage . . . and died two months later.  Literally two months. 

[Zamboni]

If I could move to a place with a similarly-established garden, I might do it, because it's not so much an attachment to the particular garden, as wanting to enjoy the benefits of having a garden.  As for instance the cherry trees I planted not long after I first moved here produced their first decent crop last year, more than a decade later.  The quince bear more each year; another decade or so and I hope the walnuts, hazelnuts, and much else will be producing...  And then there are the flowers &c that are just for visual & olfactory interest.

Aha, food bearing trees!  Hard to let those go.  I debated putting some in at my current place and even made a plan of where to plant them, but then I decided I'm going to move somewhere much smaller when the kids go to college, so I might as well save the money for the college and plan to plant the trees and the smaller place, which will hopefully be one story and "retirement-sized."  I'm thinking 800-900 square feet at that point.  The fragrant plants in my yard are part of the reason I bought this place, so I understand. 

Unfortunately I think a lot of elderly people get talked into reverse mortgages that are not needed because of marketing.  I see ads for them sometimes and I cringe.

[Jamesqf]

I'd say plant the trees anyway.  They're not all that expensive, if you buy bare-root on-line, and worst case you will have left something nice for the next owner.