It's important to save for retirement in an employer's 401(k) or in another tax-advantaged account that you open with a brokerage firm of your choosing.
If you do not have enough savings when you get to retirement, the consequences could be dire. Here's what you can expect to happen if you have insufficient savings when the time comes for you to leave the workforce for good.
1. You'll have to live on much less income
If you do not have retirement savings, you may be forced to rely solely on your Social Security benefits, which are designed to replace only about 40% of pre-retirement income. Taking a 60% pay cut is most likely going to be a huge problem for most seniors.
The reality is, while many experts recommend replacing at least 70% of your pre-retirement income, studies have shown that many seniors end up spending 90% or more of what they earned on the job. If you need 90% of what you were making to be able to cover things like housing and healthcare and you only have 40%, that's a very big problem.
2. Your money could run out during your lifetime
If you have some retirement savings but not enough, you're at a very high risk of draining your nest egg too quickly.
See, you should withdraw only a small amount of money from your investment accounts each month so you can leave enough invested to earn reasonable returns and stop your balance from declining too quickly. Most experts recommend limiting withdrawals to about 4% of your balance (or less) in the first year of retirement and then adjusting up for inflation.
If you can't live on just 4% of your nest egg (along with Social Security) because you have too little saved, you'll probably be tempted to take out more. Your account balance could dwindle quickly, leaving you without any savings to rely on later in retirement.
This is an especially big problem because health issues are more likely to develop in the later years of retirement, you're less likely to be able to work then, and your buying power from Social Security will likely have declined because benefits aren't fully keeping up with inflation.
3. You may struggle to afford the necessities
Sadly, if you don't have a lot in retirement savings, you could find yourself struggling to cover all of the basic costs you need to pay out of your checking account. In fact, according to Fidelity research, a single 65-year-old in 2023 may need as much as $157,500 saved (after taxes) in order to be able to afford to cover healthcare expenses in retirement. And that is just one of many expenses.
You'll also have to pay for things like housing, food, and transportation. And the sad reality is, there may simply not be enough to cover all of these things and you may find yourself forced to choose between groceries and medication or heating bills.
4. You may have to downsize your lifestyle
Without enough retirement savings, you will likely need to make drastic lifestyle changes. This could mean selling a home, if you have one, or moving to a lower cost of living area. It could also mean giving up life's little luxuries you've come to enjoy.
You do not want to find yourself in this situation. So, try to save as much as you can for retirement from as young of an age as possible -- you'll have longer to benefit from compound growth in your retirement account. This will help you ensure you have the money you need to enjoy your later years instead of facing a dire financial situation.
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FAQs
You may struggle to afford the necessities
What happens if you don't have enough money saved for retirement? ›
You may have to rely on Social Security
Many retirees with little to no savings rely solely on Social Security as their main source of income. You can claim Social Security benefits as early as age 62, but your benefit amount will depend on when you start filing for the benefit.
How much does the average person have in retirement savings when they retire? ›
Here's how much the average American has in their retirement savings by age
| Age Range | Median Retirement Savings |
|---|
| 45-54 | $115,000 |
| 55-64 | $185,000 |
| 65-74 | $200,000 |
| 75 or older | $130,000 |
2 more rowsMay 5, 2024
How Much Should a 70-Year-Old Have in Savings? Financial experts generally recommend saving anywhere from $1 million to $2 million for retirement.
What percentage of Americans don t have enough saved for retirement? ›
WASHINGTON—A new AARP survey finds that 20% of adults ages 50+ have no retirement savings, and more than half (61%) are worried they will not have enough money to support them in retirement.
How do people retire with no retirement savings? ›
Individuals who have not saved for retirement and who still own homes can turn to their homes as a source of income. For some, this could mean renting a portion of their space as a separate apartment. Another option is to take a reverse mortgage on a home, although doing so can be costly and complicated.
What happens when retirees run out of money? ›
If you run out of money in retirement, you may face financial hardship and reduced quality of life. You may need to rely on family members or government programs for financial assistance, reduce your standard of living, or make significant lifestyle changes.
What is the average social security check? ›
Generally speaking, the average Social Security check was $1,710.78 in November 2023, according to the Social Security Administration. However, this number doesn't specifically address retirees who earned a middle income during their time in the workforce.
What is considered a good monthly retirement income? ›
Let's say you consider yourself the typical retiree. Between you and your spouse, you currently have an annual income of $120,000. Based on the 80% principle, you can expect to need about $96,000 in annual income after you retire, which is $8,000 per month.
How many people have $1,000,000 in retirement savings? ›
However, not a huge percentage of retirees end up having that much money. In fact, statistically, around 10% of retirees have $1 million or more in savings. The majority of retirees, however, have far less saved.
Household wealth or net worth is the value of assets owned by every member of the household minus their debt. The terms are used interchangeably in this report. Assets include owned homes, vehicles, financial accounts, retirement accounts, stocks, bonds and mutual funds, and more.
What is considered wealthy at retirement? ›
Super wealthy (99th percentile): $16.7 million. Wealthy (95th percentile): $3.2 million. Well off (90th percentile): $1.9 million. Middle class (50th percentile): $281,000.
How long will $500,000 last in retirement? ›
As mentioned, $500,000 can last for over 30 years if budgeted correctly. However, there are a number of caveats to this, including how long you need your retirement savings to last you. For example, if you retire at 40 and need enough retirement savings for another 40 years, you may struggle.
What is it like to retire on almost nothing? ›
Roughly one in seven Social Security recipients ages 65 and older depend on their benefits for nearly all their income, according to an AARP analysis. Unable to maintain the lifestyle of their working years, they trim their already trim budgets, move into smaller homes, or rely on the kindness of relatives to get by.
How many seniors have no savings? ›
20% of adults ages 50+ have no retirement savings, 61% worry they won't have enough at retirement, as per new AARP survey.
What percent of people over 55 have no money saved for retirement? ›
According to U.S. Census Bureau data, 50% of women and 47% of men between the ages of 55 and 66 have no retirement savings.
What if I haven't saved for retirement at 50? ›
Take advantage of catch-up contributions
If you didn't make saving for retirement a priority early in life, it's not too late to catch up. At age 50, you can start making extra contributions to your tax-sheltered retirement accounts (called catch-up contributions).
How do you retire if you are poor? ›
Older adults with lower incomes have a number of financial options available to help in retirement. Programs such as Medicare, Social Security, food stamps, Medicaid, and Supplemental Security Income (SSI) are available to those who qualify.
What is the least amount of money you need to retire? ›
Some experts say to have at least eight to 10 times your annual salary available to you once you enter retirement. Others say you need at least 65% to 80% of your pre-retirement income available to you each year. There are also general savings recommendations by age, and, finally, there's the 4% rule, too.
