When we talk about retirement, there are two parts of that conversation. One is the plan, how it is going to be funded, and the second is about timing. If we can answer those two questions, retirement should be a walk in the park.
There are three ways to fund retirement.
Self-funded. This is the default view of financial professionals in America. They want you to save early and often in order to set back a nest egg, from which you generate income when you reach “retirement age.”
Family-funded. This is the default view of many other cultures, either more impoverished cultures like third-world countries, or family-based cultures like in the Middle East, who choose to co-exist in one big happy house.
Government-funded. This is the view that social security alone should fund the retirement requirement for Americans. Historically, in 1935 FDR setup the social security program as an aid, a supplement to the self-funded route, but as time has progressed, Americans have relied on this more and more. (In 2017 it paid out over $800 billion to fund retirement income.)
Americans typically default to option 1 and 3, with option 2 being dependent on your family structure. But, on the average, more Americans are relying on social security than not.
(All the following statistics come from the U.S. Census Bureau and the Economic Policy Institute.)
This is the effectiveness of the self-funded savings of retirees in America:
The mean retirement savings of all working-age families is $95,776,
The median amount, which factors in the nearly 50% of Americans who have no retirement savings, is just $5,000.
This is how the timeline typically looks:
The average American retires at age 62,
The average length of retirement is 18 years,
Most retirees want to retire later now, but health typically gets in the way:
41% of retirees leave the workforce due to health problems or disabilities,
14% of retirees leave the workforce in order to provide care for spouses or other family members,
Nearly half of all retirees leave the workforce earlier than planned, often involuntarily.
Basically half of retirees are forced to retire sooner than they expected because of their health or their spouse’s health.
What does all this mean?
In an ideal world, we would all save early and often enough to self-fund our retirement period. That way, we have the most freedom possible. Why doesn’t this happen more often?
This question is why financial professionals have a career at all…because even though America is the wealthiest nation on the planet, we still have so little preparedness.
Maybe our comfortable careers lull us into a slumber of procrastination, or maybe our political perspectives lull us into a slumber of offloading the responsibility entirely.
What matters is that we recognize the opportunity we have in this country to build wealth and secure our future, and we take that opportunity seriously.
Time won’t stop, and odds are we will all retire sooner than we wanted. But that doesn’t have to be a negative thing. It’s all about preparation.