What was your first “taste” of retirement?
When Kristen Edens was 15, her greatest envy was her grandparents’ retirement. She longed for the day she could experience that “glorious season of life.” For Edens, now 56, a comfortable, early retirement was the goal, and it felt like nothing could stop her from getting there.
Fast-forward 30 years, and Edens found herself divorced and unemployed with an IRA of $90,000 — in 2009, one year after the financial crisis. With the economy in shambles, then-45-year-old Edens felt she only had two options: Go back to school to refresh her masters (and become inundated with debt) or start a business. She chose the latter.
While trying to get her name out there, Edens undertook what became too much pro bono writing work, and many expected her to continue to work for free. Learning to say “no” was key to her becoming financially independent.
But just after a cross-country move to live rent-free in exchange for cooking and yard work, Edens unexpectedly became a caregiver when her father suffered a fall that left him brain damaged. Shortly after that, she undertook caregiving for her newborn granddaughter while her daughter worked. A year after that, Edens’ partner was left disabled and unemployed after a workplace injury.
Fifty-five is the earliest age at which you can start drawing funds penalty free from some qualified retirement savings and you need to wait until your 60s for Social Security benefits. For Edens, the dream of early retirement was looking less and less likely by the day.
The Reality of Retirement
While living on a freelancer’s income and her partner’s savings that were slowly dwindling, Edens nonetheless contributed to her IRA every year but one. Worn out by lack of motivation, the struggles of entrepreneurship, caring for her parents, children, and grandchildren, on top of financial insecurity, Edens still pursued a comfortable retirement.
For many like Edens, the financial strain of caregiving while working for yourself can take its toll.
With so much else going on in the day-to-day, it can feel impossible to save for retirement on top of it all.
Almost half of people age 55 and older have less than $50,000 saved for retirement according to a recent survey of 1,366 people conducted by Haven Life Insurance Agency, which offers AgeUp, a longevity annuity product. To say nothing of the 48 percent of people in general who have nothing saved for retirement at all, according to the U.S. Government Accountability Office.
And what about spending? Households headed by people over the age of 65 spend almost $46,000 per year, the Bureau of Labor Statistics reports — that’s about $3,800 a month. Naturally, spending in retirement varies from household to household, and any unexpected costs such as supplemental health insurance premiums, housing costs if you move, and finally giving in and buying that yacht you’ve always dreamed of could come into play.
With the annual cost of living nearly eclipsing the total amount most people have saved, it’s no surprise that Social Security benefits are the major source of income for the aging population, the Social Security Administration (SSA) reports. When the program was initiated in 1935, average life expectancy for men was 58 years and 62 years for women — today, it’s 78.6 years old according to the Center for Disease Control and Prevention. The bottom line: Social Security was not created to be a long-term retirement solution to begin with, and with people living decades longer today that’s even more clear.
Even more troubling, Social Security benefits will be reduced, as the number of beneficiaries will eventually outweigh the number of active workers, the SSA projects.
Unlike Edens, Carol B. Amos found herself in retirement at age 59, much earlier than planned after a downsizing at her company. Yet a large severance and strategic, rigorous retirement planning in her early years means she can delay claiming Social Security benefits today in order to collect the highest payout in later life. If you are approaching retirement, it’s wise to research the best time for you to collect your benefits, too.
How to Break Out of the Retirement Slump
So what can you do to ensure you’ll have enough money in retirement? “If you lack retirement savings, now is the time to get honest with yourself and decide whether you will live on Social Security (not an easy feat) or create additional income for your later years,” advises financial expert Barbara Friedberg, MBA. “Realize that every decision has trade-offs, and saving for retirement is no different.”
It is never too late (or early) to start saving for retirement. Friedberg suggests the following when you have made the decision to start saving for retirement now:
“Assess your lifestyle and decide what you can trade out in order to save. The more serious you are about retirement, the stricter you can be with yourself. Some areas to save and cut back on:
- Drive a less expensive car.
- Downsize to a smaller home or apartment if possible.
- Start to cut out wants and focus on needs.
- Pay off all consumer debt — it’s a challenge to save and invest if you’re in debt.
“Create a retirement saving mindset. To make saving for retirement easier, focus on what you already have, and your goal of saving a retirement stash,” Friedberg added.
Once you have taken the steps above and are ready to save, Friedberg recommends automating your retirement saving and investing. Here’s how to do it:
- Sign up, where applicable, for your workplace 401(k) or 403(b). This will allow your employer to automatically transfer part of your salary into the account. Contribute as much as possible into the account — any amount is a step in the right direction. And if your employer offers a match, it’s in your best interest to take advantage, if you are able to do so.
- Ambitious retirement investors can also open a taxable brokerage account or Roth IRA with a robo-advisor or investment firm and have money automatically transferred from your bank account into it.
- The investments in the 401(k), 403(b), IRA, and investment account can be invested in a target-date retirement fund of low-fee index funds.
When done right, successful retirement planning is possible and lucrative in later life. Amos, 63, who began planning for retirement as soon as she could, stresses the importance of investing. “I selected a moderate/aggressive asset allocation to make sure I could retire comfortably. I used risk determination tools offered by financial institutions,” she says.
“I also believed if there was a downturn, I would not lose it all and the markets would eventually rebound. I did lose money during downturns, but if I had a more conservative allocation, I would not have had as much money to lose. By starting savings early, time was on my side,” Amos adds
If you are struggling to make ends meet, consider capitalizing on your talents, living within your means, and resisting lifestyle inflation. Edens discovered her avenue to success by discussing her situation on her blog. Writing what she thought would make money didn’t work for her, but when she finally began writing about her relatable real-life experience, it led to new business opportunities.
“It’s difficult with adult children, parents, and grandchildren, but be tough and learn when to say no to others, especially when your personal finances are in jeopardy,” Edens adds.
Retirement and Beyond
Regardless of how prepared you are for retirement, none of us knows how long we will live and what we will need to support ourselves. What is clear is we are living longer — in fact, one in every three 65-year-olds today will live until at least 90, the SSA reports. Even with any retirement planning, Social Security — in its current form — may not provide enough monthly income today into or when you are in your 90s.
In addition, it’s not only yourself you may have to worry about — as Edens learned. Life happens and you could find yourself responsible for your children and parents at some stage in your life.
Even Amos, who is comfortably retired, worries about unexpected medical costs setting her back: “Medical expenses are the biggest retirement unknown. I have insurance, but I don’t really know what I have to pay until I receive the bill.”
With all of this in mind, how can you ensure you are prepared to live happily and comfortably into your 90s and beyond?
What Is AgeUp?
Cue AgeUp, a longevity annuity, sometimes called a deferred income annuity (DIA), that begins paying out at age 91 or later. Longevity annuities provide secure, guaranteed income in late retirement that’s shielded from market swings and lasts for life — similar to a pension you buy for yourself.
When surveyed, 72 percent of those over the age of 55 who expect to live into their 90s stated they’d prefer to remain in their own home, yet the Haven Life Insurance survey revealed a shocking 40 percent of respondents do not know who will take care of their finances if they run out of money. Moreover, 86 percent of those participants say they believe Social Security could fund their later retirement.
Often, longevity annuities require up-front payments of at least $100,000. The numbers show that not many of us have that kind of money to spare.
But AgeUp’s minimum initial contribution is an affordable $25 per month and can go to $250 a month. If you are between the ages of 50 and 75, you can put aside what you can afford.
The payouts begin between ages 91 and 100, and the longer you defer, the higher the payout. AgeUp provides a guaranteed lifetime income and, while it’s not something we like to think about, there is an option available if you or your loved one passes away before reaching 91.
Should you choose the “death before payout age” option, you or your beneficiary will get back at least what you put into the annuity, no matter what. If you or your loved one dies before payouts begin,100 percent of the premiums you’ve paid to that point will be returned. This option means the payouts will be smaller when you or they reach 91, or whatever your target payout age is.
If you choose “no” for the “death before payout age option,” there’s no return if your loved one dies before payouts begin — think of it this way, you may not need this extra income if your parent doesn’t live to the selected age. The payouts will be larger if he or she does reach the target payout age, however.
There are no restrictions on how you can spend the payouts, and no doctor visit or health screenings are required to set up.
Shown above are the estimated payouts for a 65-year-old man with a $50 monthly premium and payouts starting at 95. On the right is the result of spending the same amount on a typical longevity annuity, using the highest payout age of 85.
Take Action: Prepare for Later Retirement Now
So how can AgeUp help you with your retirement goals? There are a number of costs that occur or increase as we age. Having a reliable income source in later life can help assuage fears of not being able to afford them if and when they happen. Whether they are healthcare costs, living in one’s home or assisted living community, it’s relieving to know one has financial options.
Life is unpredictable and fortunately lasting longer. Whether you’re like Amos who has been saving since college, or you have faced multiple setbacks like Edens, it’s never too late to start preparing for your future.
If you haven’t started already, the next best time to start saving is today.
“Even if you’re 40. Even if you’re 50. Even if you’re 65 and retiring soon,” explains Peter Neeves, Ph.D., a behavioral finance and financial literacy expert.
Now that you’re aware of the rising costs that come with living into your truly golden years, start preparing today.
AgeUp offers the option for you to save for yourself or for a loved one, so you can truly get the peace of mind that comes with preparedness, customized to you.
AgeUp is a Deferred Income Annuity (ICC19DTCDIA) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111 and offered exclusively through Haven Life Insurance Agency, LLC. Contract and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in Arkansas is 100139527.