What Should Happen When a Person Retires With No Savings?
While currently, a good proportion of Americans are in their senior years without any savings, it is advisable to have a nest egg for retirement. According to a recent Employee Benefit Research Institute survey, 55% of Americans have a balance of less than $50000 and more than 25% of them have less than $1000 to name in their retirement account.
Retiring without the acquisition of enough money to sustain you when you are no longer working would therefore have consequences. Although your circumstances will determine the details, below is a general list of some possible outcomes: Although your circumstances will determine the details, below is a general list of some possible outcomes:
1. Reliance on Social Security
The government pension system, albeit not as vast as what was accrued in your working years, if you have contributed to Social Security. Nevertheless, the current average monthly Social Security benefit is $1,657 for a recipient in 2022. It’s not usually enough to meet the daily expenditure necessities of life. Those who have no personal savings, and no pension plan, would have to pencil-pin their income and scale down their living standards considerably to survive on Social Security benefits only.
2. Financial Hardship
That is if you do not have investment income or a nest egg for when you retire, you most probably will barely make ends meet in terms of health care, shelter, food, transport, and other expenses. This may cause one to borrow to survive, live with relatives, or let the retirement age be far from what is considered acceptable. However, it is financially beneficial to earn more when in your late 60s, 70s, or even older, but the work can be a strain.
Lower Standard of Living
Failure to save personal money to retire is likely to lead to another consequence, which is your inability to carry out the activities that made up your previous lifestyle. Some of the expected changes include; selling a larger home and moving into a small house, trading in a luxurious car for an older model, abandoning travel and leisure, changing the way one spends money, and many other distasteful adjustments for a very low-income level.
Reliance on Government Assistance
Next, as mentioned above, retiring without savings means that you will probably have to rely on other government programs that will enable you to meet your basic needs. For instance, hunger and nutrition (SNAP), affordable and safe housing (Tenant and landlord services, rental assistance) and health care (Medicaid and Medicare, MSP) transportation, warm and energy assistance (LIHEAP), and many others such as prescriptions, utilities, and more. To enroll in these programs, one has to meet income standards which are considered low-income levels.
Financial Strain on Family
Even if government support does not suffice to meet basic needs, family members are likely to add pressure in terms of financial help. This can be quite a pressure on relations and finances since one is still working to save for retirement and provide for a family. Another issue that is evident when borrowing cash from kin is that there is usually an interest charge.
Reverse Mortgage
Another, if you are a homeowner who is currently unemployed and does not have any retirement plan, is the use of a reverse mortgage loan. This enables you to take money from the home equity without having to make loan payments. However, the reverse mortgage bears high upfront costs and interest rates for the homeowner. You also run the risk of having your home repossessed if you fail to make property taxes and homeowner’s insurance payments.
Returning to Work
It is however equally difficult to secure employment in your sixties, seventies, or older beyond the age of employability. However, due to poor planning in preparing for your retirement, you might find yourself forced to work again, either on a part-time or full-time basis to cater to your needs. Just understand that you could lose part of your SSDI benefits once you start making additional earnings if you claimed it early before the age of 66.
Declining Health
Poverty and inability to afford quality health services may take a toll on one’s health faster hence the need to plan for retirement. Sometimes, cutting corners may mean opting for a ‘lesser evil’, for example, taking expensive drugs or attending doctors’ appointments – all this could lead to a decrease in life expectancy.
The Bottom Line
A good retirement plan is one where the individual will be able to accumulate enough money for retirement that when combined with social security benefits will be seventy to eighty percent of pre-retirement income. But what can one do with investment assets worth $500,000 or even more to be financially secure in the modern world?
Lastly, it is very dangerous to go through the later stages of your life with no list of funds to meet your needs. They will most probably require significant changes in their mode of living, worry about medical expenses and other costs, and fear. It becomes possible to avoid such an undesirable outcome if you save and invest money for retirement during the Working Years, although it is not impossible to start with small amounts of money. But if it is already too late to see the signs and realize that retirement is not for them, then it is helpful to know that they have some choices such as downsizing, putting off taking Social Security, going to work longer, or going on government assistance.
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