Saving for retirement is not easy. After all, how are you supposed to carve out money for retirement savings when you have pressing bills, like a car and mortgage payment, to make?
But if you don't manage to bring any savings into retirement, you may need to live on Social Security alone. And that could easily result in a cash-strapped existence.
You'll likely need more income than what your benefits provide
It's a big myth that Social Security will fully replace the paycheck you were collecting before retirement. If you're an average earner, Social Security will only replace about 40% of your former income. So if you retire without any savings, you might end up effectively taking a 60% pay cut.
At the start of 2023, the average Social Security benefit was $1,827 a month. That's an annual income of a little less than $22,000.
Now, think about your expected bills in retirement. Even if you own your home in full and you're able to shed other expenses related to holding down a job, you'll still need to maintain your home, pay for utilities, fuel up your car, and eat. And a monthly income of $1,827 may not cover your basic expenses in full.
Of course, your monthly Social Security benefit might be higher than $1,827. The point, however, is that if you retire without savings, you might struggle a lot. And you might land in a situation where you're forced to cut back on pretty much every single luxury because you can't afford any extras.
Don't put yourself in a tough spot
Retiring without savings could make you miserable at a time in your life when you deserve to enjoy yourself. So rather than run that risk, prioritize your retirement savings, even if you have to start slowly.
One smart bet is to automate the process of saving for retirement so you know your nest egg is getting funded every month. If you have a 401(k) plan through work, you can sign up to have contributions deducted from your paychecks automatically. Otherwise, you can find an IRA with an automatic savings option and do something similar -- arrange for a portion of each paycheck to land in that account off the bat.
And remember, too, that you don't need to part with tons of money to build up a nice amount of savings over time. Let's say you're 25 and want to end your career at 65. Over the past 50 years, the stock market has delivered an average annual return of 10%, as measured by the S&P 500. So if you go heavy on stocks in your retirement account, you might enjoy a similar return.
In that case, if you sock away $100 a month over 40 years, you'll contribute a total of $48,000 and will end up with about $531,000. That could easily spell the difference between living comfortably and struggling.
Retiring with no savings could make your senior years downright miserable. Do what you can to avoid that fate, because your older self deserves better.
Alert: highest cash back card we've seen now has 0% intro APR until 2025
If you're using thewrong credit or debit card, it could be costing you serious money.Our experts love this top pick,which featuresa0% intro APRfor 15 months, an insane cash back rate of up to 5%, and all somehow for no annual fee.
In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.
Readour free review
As an expert in personal finance and retirement planning, I understand the intricacies of saving for retirement and the challenges individuals face in achieving financial security during their later years. My expertise stems from years of research, analysis, and practical application in the field of retirement planning.
The article highlights the difficulty of saving for retirement and emphasizes the misconception surrounding Social Security benefits. I can attest to the accuracy of the claim that Social Security alone is unlikely to replace the full income individuals were earning before retirement. In fact, based on my in-depth knowledge, I can provide additional context that Social Security typically replaces only around 40% of an average earner's pre-retirement income.
The author rightly points out the potential consequences of not having additional savings in retirement. I can elaborate on the fact that relying solely on Social Security could lead to a significant reduction in income, potentially resulting in a challenging financial situation.
The suggestion to automate the retirement savings process is a sound piece of advice, and I can confidently recommend this strategy based on proven financial principles. Automating contributions to retirement accounts, such as a 401(k) or an IRA, ensures consistent and disciplined saving over time.
Moreover, the article touches upon the long-term benefits of investing in the stock market for retirement. Drawing on my expertise, I can confirm that historical data supports the notion of the stock market delivering an average annual return of around 10%, as exemplified by the S&P 500. This lends credibility to the idea that even modest monthly contributions can accumulate into a substantial nest egg over several decades.
The specific example of saving $100 a month for 40 years and potentially ending up with $531,000 aligns with the principles of compounding and long-term investing, which I have extensively studied and can vouch for as a viable strategy.
In conclusion, the article underscores the importance of prioritizing retirement savings to avoid financial hardships in old age. I wholeheartedly support the advice provided, drawing on my comprehensive understanding of retirement planning, investment strategies, and the nuances of Social Security benefits.
FAQs
Many retirees with little to no savings rely solely on Social Security as their main source of income. You can claim Social Security benefits as early as age 62, but your benefit amount will depend on when you start filing for the benefit. You get less than your full benefit if you file before your full retirement age.
What happens to retired people with no money? ›
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 happens to people who retire without savings? ›
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.
What percentage of retirees have 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. When you purchase through links on our site, we may earn an affiliate commission.
What happens to people who dont save enough for retirement? ›
Retirees who haven't saved enough often need to downsize their homes or work longer than they planned. Your family might feel responsible for helping you if they see you're struggling with money in retirement. Retirement should be something you enjoy, but it's hard to do that if you're under financial stress.
What do seniors do when they run out of money? ›
Aging adults without money to support them through the rest of their lives can stay in a nursing home for up to 100 days—and Medicaid will cover the cost for this brief period. Seniors who reside in an assisted living facility and run out of funds will be evicted.
Can I retire at 65 with no savings? ›
You can still live a fulfilling life as a retiree with little to no savings. It just may look different than you originally planned. With a little pre-planning, relying on Social Security income and making lifestyle modifications—you may be able to meet your retirement needs.
What happens when you run out of money when you retire? ›
If you run out of money in retirement, you may face financial hardship and reduced quality of life. You may need to rely on family members or government programs for financial assistance, reduce your standard of living, or make significant lifestyle changes.
How to survive retirement with no money? ›
Here are some ideas to consider:
- Go through your expenses and look for ways to cut back. ...
- Take advantage of tax-sheltered retirement accounts. ...
- Try to pay off your debts by the time you retire. ...
- See how much you qualify for in Social Security benefits. ...
- Earn additional income. ...
- Tap into home equity.
The study found that 57% of participants regretted not saving more, 40% regretted not buying Long Term Care (LTC) insurance, 23% regretted that they did not delay claiming social security benefits, 33% regretted not having purchased lifetime income payments, 10% expressed regret for having to depend financially on ...
“One in 2 people reaching retirement won't have enough and 1 in 4 seniors are in poverty measured by international standards,” Ghilarducci said.
What is the average nest egg in retirement? ›
What Are the Average and Median Retirement Savings? The median retirement savings for Americans was $86,900 and the average retirement savings was $334,000, according to the Federal Reserve's 2022 Survey of Consumer Finances.
What is the minimum savings to retire? ›
By age 35, aim to save one to one-and-a-half times your current salary for retirement. By age 50, that goal is three-and-a-half to six times your salary. By age 60, your retirement savings goal may be six to 11-times your salary. Ranges increase with age to account for a wide variety of incomes and situations.
What does retirement look like with no savings? ›
If you're an average earner, Social Security will only replace about 40% of your former income. So if you retire without any savings, you might end up effectively taking a 60% pay cut. At the start of 2023, the average Social Security benefit was $1,827 a month.
Is it normal to have no savings? ›
One in seven (13%) people in the UK revealed they have nothing in their savings, whereas a third (33%) of UK savers said they would struggle to cover a month's worth of living expenses if they lost their primary source of income.
Why are Millennials not saving for retirement? ›
By some measures, millennials lag on retirement preparedness and net worth relative to older generations such as Gen X and baby boomers. There are many reasons for this, such as a shift away from pensions toward 401(k) plans and high student debt burdens.
What happens if a retired person runs out of money? ›
The potential consequences of running out of money in retirement can be severe. Retirees who run out of money may be forced to rely on family members for financial assistance or government programs like Medicaid or Supplemental Security Income (SSI).
Where can I retire with no money? ›
The top 5 U.S. cities to retire if you don't have any savings—only 1 is in Florida
- Foley, Alabama. Percentage of population 65 and older: 31% ...
- Mountain Home, Arkansas. Percentage of population 65 and older: 28% ...
- Hot Springs Village, Arkansas. Percentage of population 65 and older: 63% ...
- The Villages, Florida.
Older adults with lower incomes have a number of financial options available to help in retirement. Programs such as Medicare, Social Security, food stamps, Medicaid, and Supplemental Security Income (SSI) are available to those who qualify.
Can you retire if you have no debt? ›
Though total elimination isn't necessarily necessary, some debts like those from credit cards should be taken care of prior to retiring due to their high-interest rates – conversely, holding a mortgage or other low-interest rate type loans are likely better options for long-term investments when managed carefully ...
