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Is the U.S. Retirement Ready? 

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All workers have been affected by the pandemic to a greater or lesser extent – from a sharp decline in physical and mental health to increased unemployment and financial concerns.  

With record rates of inflation, a bear market, and a looming recession – recent events have upended nearly every aspect of our lives, pushing financial wellness and dreams of early retirement outside our reach. The latest figures paint a concerning picture – a third of workers are not as confident that they will have a comfortable retirement.   

As employees are braving a new world of heightened macroeconomic volatility – the question that arises is – where do workers stand financially?

What is the long-term retirement outlook for the average worker?

Is the U.S. retirement ready?  

Retirement Readiness

Every worker looks eagerly to their retirement days, yet only a minority take action to make it happen. Undoubtedly, all financial decisions in younger years can significantly affect how soon we can retire.    

The term “retirement readiness” describes how financially ready a person is for retirement. The harsh reality is that most Americans (41%) believe that it is going to take a miracle to be financially secure in their golden years.    

When asked if they think the U.S. is retirement-ready, Andre Oentoro, CEO & Founder of Breadnbeyond, comments: 

“Unfortunately, no. Only 22% of Americans have less than $5,000 saved for retirement, and 15% have no retirement savings. 

Several factors contribute to this bleak outlook, including: 

  • An aging population. 
  • Increasing life expectancy. 
  • A declining savings rate. 
  • Rising health care costs. 
  • The current economic climate. 

All these factors combine to create a perfect storm that leaves many Americans ill-prepared for retirement.”  

So, what are some things to consider when discussing retirement readiness in the U.S? 

The “Full” Retirement Age

Did you know that the full retirement, or “normal retirement age,” used to be 65 for many years?

However, that changed in 1983, when a law was passed to gradually raise the age because people live longer lives today – with the average life expectancy being 77 years. 

The average age for when workers hope to retire is 62, although it varies by generation: 

  • Millennials (ages 25 to 40) – plan to retire at an average age of 59. 
  • Gen X (ages 41 to 56) – plan to retire at an average of 60. 
  • Baby Boomers (ages 57 to 75) – have an average expected retirement age of 68. 

People can receive Social Security benefits starting at age 62; however, they receive reduced benefits for claiming early. If they wait until their “full retirement age” to claim – usually 66 or 67, they receive the full benefits they have earned.

Alternatively, if they wait until age 70 to claim benefits, the benefit amount increases as they are eligible for delayed retirement credits 

Deciding when to start receiving Social Security benefits is essential to choosing when to retire. One thing to keep in mind is that experts predict the current “normal” retirement age can be pushed even higher, once again changing the age threshold to retirement. 

Lack of Access to Retirement Options

The American retirement income is often thought to come from three different sources, Social Security, pensions, and savings. However, very few retirees have income from all three sources. In fact, a third of senior Americans plan to work past age 70 or never retire.  

Government data tells us that over 70% of all U.S. workers have access to voluntary work-based retirement benefits, but only 56% of workers participate in these plans.

No access to retirement plans and low participation rates typically affects the most vulnerable groups of workers, part-time workers, low-income workers, and minorities. As a result, race and educational attainment have a strong role in determining retirement outcomes.  

Employee Benefits

Your employer’s retirement savings plan is the foundation of your future financial security. Defined-contribution (DC) and defined-benefit (DB) plans are employer-sponsored pensions allowing workers to invest and prepare for retirement. Employees can also enjoy additional bonuses, like significant tax advantages and other incentives.  

Statistics show that in recent years, Americans have preferred investing in defined-contribution plans, such as 401(k) retirement funds, due to their flexibility, tax reductions, and higher contribution limits.

However, with the recent high market volatility, many employees are experiencing anxiety over the projected 401(k) value of their investments. They are left wondering: how to protect my 401(k) from a stock market crash?

Americans are forced to adjust to maintain long-term financial security by cutting back on short-term expenses, like groceries and gas.    

A 401(k) plan is not risk-free, and employees must be financially educated on protecting their savings during a financial crisis. 

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Insufficient Social Security Benefits & Benefits As a Spouse

Social Security remains one of the most important retirement income sources for most Americans.

One major benefit is that your family, including your spouse, ex-spouse, and dependent children, may qualify for benefits on your Social Security record.

These Social Security payments to family members will not affect the amount of your retirement benefit.  

Spouses with low earnings or who have never worked can get up to half of a retired worker’s full benefits.

If you are eligible for both your retirement benefits and a higher earning spouse benefit, you always receive your own benefit first. If your own retirement benefits are lower than your benefit as a spouse, you’ll get a mix of benefits equaling the higher spouse’s benefit.   

However, considering the average Social Security retirement benefit is about $1,614 per month or about $19,370 per year, relying solely on this one source of income may not be enough to attain a stable and secure retirement.  

With the rising healthcare cost and increasing life expectancy, accumulating a sizable nest from multiple sources is critical for building a sustainable lifestyle in later years.

Sadly, 40% of older Americans only receive retirement income from Social Security and do not receive income from other plans.  

How do you Know when you're Ready to Retire?

So, how do you know when you’re ready to retire? Well, it is not a one-size-fits-all formula. Planning for retirement can make anyone a little uneasy since you don’t know exactly how much you need and, therefore, how on track or off-track you are. 

“There are a many factors that can impact one’s retirement readiness, including how much money you have saved, when you plan to retire, and what your expected retirement income will be,” comments Natasha Rei, Digital Marketing Manager of Explainerd.  

What are Signs You’re Ready to Retire? 

Preparing for retirement has changed dramatically over the last 40 years, and for many, the best approach to planning a secure retirement remains a mystery. However, some clear signs that you are retirement ready are: 

  • You are financially prepared. 
  • You can live off your savings.  
  • You don’t have any debt.  
  • You have ample savings. 
  • You have health insurance.  
  • You have a new life plan.  
  • You don’t enjoy work anymore.  

How Much Do You Need to Save for Retirement?

For many, the biggest hurdle is figuring out how much money you need for retirement to be financially secure. Many variables, like age and full retirement age, life expectancy, and the amount planned to be spent in retirement, make it difficult to determine a total dollar amount. 

There are various rules of thumb to estimate how big of a nest you’ll need to support yourself: around $1 million, 80% or 90% of your annual pre-retirement income, or 12 times your pre-retirement salary.  

Will Your Savings Be Enough for Your Retirement?

It is surprising to see how much – or how little – even sizeable accounts could potentially end up providing over the course of retirement.

For example, below, we illustrate how much a 65-year-old might safely withdraw in the first year of retirement for a life expectancy of 91 years if withdrawn at a commonly-recommended rate of 4 percent.  

Savings value at age 65 

Annual income from savings  







How Much Does the Average Person Retire With?

According to Vanguard’s “How America Saves 2022” report, on average Americans have around $141,542.

However, most people have fewer savings as the median balance is only $35,345. What’s more, Fidelity’s new Retirement Preparedness Measure (RPM) puts 55% of Americans in danger of not fully covering even estimated essential expenses like housing, health care, and food in retirement.  

Ebnu Sudarso, Co-Founder of Milkwhale, comments on this, According to research, a quarter of US adults have no retirement savings, and only 36% feel their retirement planning is on track. This shows that the U.S. retirement plans are lacking and that many people are not prepared for retirement unless they take it into their own hands and prepare early on in their lives. 

Even those preparing early and saving up might come up short. Hence, I don’t think retirement in the U.S. is quite there yet.” 

Preparing for Retirement Checklist

1) Contributions 

If you are worried you may not have enough saved for the retirement of your dreams – it’s time to ramp up your savings before it’s too late.

In 2022, employees can contribute up to $20,500 toward their 401(k) plans, while those over 50 can contribute an additional $6,500 catch-up contribution. Stay updated on the latest retirement plan changes and achieve your annual savings goals. 

2) Liquidation Plan 

Switching over to withdrawing your savings might be scary. The specific way to distribute your retirement income may vary greatly from person to person based on how much money you need each month, the types of accounts you have, and other factors.

Determining how to liquidate your assets may affect your income taxes and how long your money lasts.

Therefore, coming up with a liquidation plan will help you retire in the most tax-efficient way, which can significantly affect your retirement. 

3) Financial Plan & Cash-flow  

Did you know that retirement can last for 30 years or more? In fact, the average length of retirement is 18 years. Outliving your saving is a tremendous concern for many future retirees, so having a financial plan in place can help stretch your retirement savings and resolve this longevity risk.

In addition, creating a predictable cash flow to cover most lifestyle needs can help protect you against any significant spending fluctuations.  

4) Life Insurance 

Even though it’s not discussed enough, life insurance can play a huge role in your retirement plan. It could financially support your dependents if you were to die, or the right policy could supplement your retirement income. The favorable tax treatment of life insurance is also an attractive feature.   

5) Taxes 

You have probably used one of those free online financial calculators to see if you’re retirement ready. What you probably didn’t know is that many of them can be misleading. The calculators use the gross or before-tax balance to run simulations for your retirement future.   

This means a $500,000 showing as an account balance in a 401(k) may only be roughly $350,000 after taxes. On the other hand, the same balance on a Roth account is precisely what is available to spend since these funds are not subject to taxes when withdrawn. When planning for retirement, it is vital to keep in mind the tax treatment of the account you invest in. 

6) Investing & Passive Income  

A common investing practice is frequently rebalancing your account to your original target allocations. For example, if your portfolio target is 60% stocks in your 401(k), but after stocks are appreciated, they make up 70%, it is advisable to sell off 10 percent to return to your original level. The same principle holds for real estate, bonds, or any other passive income investment.   

7) Risk Tolerance 

We often hear investors talking about risk tolerance and risk appetite. When designing a portfolio, it is essential to consider how much risk you can handle and if you are risk-averse.

Consider which portions of your investments are for the short-time horizon as those require a higher risk analysis; meanwhile, long-term investments have different investment expectations.   

On a Final Note 

Overall, there is a widespread generational agreement that the U.S. is facing a retirement crisis, and workers have a more pessimistic outlook on their senior years, signaling that the U.S. is far from retirement ready 

Rei shares the same sentiment, So, whether the US retirement is ready, it’s up to the individuals but seeing the number of people actually preparing for this, it’s safe to say that the US isn’t fully ready yet.” 


Written by Shortlister Editorial Team
Written by Shortlister Editorial Team