Nobody wants to retire broke, but it’s an unfortunate reality many Americans will face.
Today’s workers face a unique struggle in that the majority of their retirement income will need to come from their personal savings. Previous generations were able to receive the bulk of their income from pensions and Social Security benefits. Today, though, few employers still offer pensions, and Social Security benefits are only designed to replace around 40% of your pre-retirement income.
That means most retirees will need to lean heavily on their savings to make it through retirement, yet many workers are woefully unprepared financially. And there’s one group in particular that may struggle more than most.
Some retirees are more at risk than others
To ensure you’re as financially comfortable as possible in retirement, some experts recommend thinking of your finances as a “three-legged stool.” In other words, that means you should have income from a defined benefit plan (such as a pension), a defined contribution plan (like a 401(k)), and Social Security benefits.
Some older adults, however, go into retirement with zero legs on their stools, meaning they don’t have access to a pension, have no savings in their retirement fund, and aren’t eligible to receive Social Security benefits.
Unmarried women age 60 and older are the most likely not to have any of those three sources of income, according to a study from the National Institute on Retirement Security, compared to older unmarried men and couples. The retirees in the study are also all working fewer than 30 hours per week, and among unmarried older women, the median retirement income is just over $6,500 per year.
Even if you make drastic financial cutbacks, that amount is hardly enough for most people to live on — let alone enjoy a comfortable retirement. Fortunately, if you’re nearing retirement age and your savings are looking a little shaky, there are a few things you can do to better prepare.
Increasing your retirement income one leg at a time
When you think about your “three-legged stool,” focus on the legs you don’t have. If you don’t have access to a pension, there’s not much you can do about it. But you do have control over your Social Security benefits (or lack thereof) as well as how much you have stashed in a retirement fund.
To receive Social Security benefits, you’ll need to have worked and paid Social Security taxes for at least 40 quarters (which amounts to 10 years for most workers). Working that long will at least earn you some money in benefits, though it likely won’t be much. To calculate your benefit amount, the Social Security Administration looks at the 35 highest-earning years of your career, takes an average of your income during that time, and adjusts it for inflation. If you’ve only worked 10 years, that means you’ll have 25 zeros in your equation — which will bring down your average significantly. However, some money in benefits is better than none, so if you can, try to work at least 10 years to become eligible for those monthly checks.
It’s also important to think about whether you may be eligible for benefits based on someone else’s work record. Unmarried women may be particularly at risk of retiring broke because some may have spent most of their years at home caring for children instead of working. Then if they get divorced later in life, that could leave them with no savings, no Social Security benefits, and no pension. However, it is possible to claim benefits based on an ex-spouse’s work record. Generally you have to have been married for at least 10 years and cannot currently be married, and if you’re eligible, you could receive up to 50% of what your ex-spouse is earning if they claim at their full retirement age.
The next area of focus, then, should be your personal savings. If you only have a few years until retirement, you likely won’t be able to retire a millionaire. But saving a little is better than saving nothing, and you may be surprised at how much you can save in a few years. Especially if you have access to a 401(k) plan that offers employer matching contributions, you could be able to save tens of thousands of dollars in a relatively short period of time.
Retirement can be incredibly expensive, and if you’re going into your senior years with little to no money, this period in your life likely won’t be as enjoyable as you’d hoped. But by taking a few steps to boost your retirement income, you can ensure you’re doing everything possible to set yourself up for success.
