Decades ago, retirement was fairly predictable: Social Security and a pension provided much of your income, you moved to the Sun Belt, played tennis or golf, and you lived to age 70 or 75.
To varying degrees, this was the American retirement experience during the last few decades of the previous century. Those days are gone, and retirees must now assume greater degrees of financial self-reliance.
Social Security benefits will probably not keep us afloat in retirement. Generations ago, a retiree could potentially enjoy a middle-class lifestyle by pairing Social Security income with a pension from a lifelong employer. Today, pensions are scarce, and the maximum monthly Social Security benefit is less than $3,000.
Seniors who think they can retire on Social Security alone are in for a rude awakening. The lesson: you must supplement Social Security benefits with other income streams or sources in retirement.
Many of us carry more debt than our parents and grandparents once did. It is much easier to borrow money (and live on margin) today than it was decades ago. The prospect of retiring with outstanding home, student, business, and auto loans is real.
Some of us are retiring alone. Once retired, we may share a residence with a sibling, child, or friends, which could offer us something of an economic cushion.
We will probably live longer than our parents did. Today, the average 65-year-old man is projected to live to 84; the average 65-year-old woman, to 87. Yesterday’s retirees could depend on a combination of Social Security, pension income, and fixed-income vehicles during a 10-year or 15-year retirement. In contrast, we may need to sustain a diverse investing approach during our probable 20-year or 30-year retirements.
We will likely have to insure ourselves if we retire before age 65. Those of us who retire too young to be eligible for Medicare will have to try and find some kind of private health coverage in the interim, and it could be expensive. Out-of-pocket medical expenses will add further financial pressure.
Our retirement will differ from that of our parents. It will likely be longer; it will also offer us the potential for a great quality of life. We must plan ahead to try and meet its financial challenges.