The life satisfaction of retirees includes much more than just their nest egg balance .
I spend half of my year with my wife and two-year old daughter in rural Costa Rica. We live and volunteer on a permaculture coffee farm—a nice byproduct of being able to work via the Internet.
One person we’ve gotten to know well is a woman I’ll call Doña Maria. At 90-years old, she’s the great-grandmother of our neighbors’ family. She lives in a house with one of her children, two of her grandchildren, and four of her great-grandchildren.
By typical American standards, we’d say that she’s deeply impoverished—and would (paternalistically) say that her life situation was a tragedy. But you wouldn’t know it from talking to her, or seeing how she lives her life. Up at the crack of dawn to milk the family cow, spending a copious amount of time with neighbors, friends and great-grandchildren, and moving about her house with ease, she’s the very model of happiness in old age.
Why do I tell that story? Because it would be easy to draw hard-and-fast conclusions about the state of today’s retirees from the numbers I’m going to present alone. Indeed, just based on what we might see, it would be easy to believe that the vast majority of our retirees are living on the razor’s edge of a deeply depressing life.
While that may be true for some, it certainly isn’t for all. And that’s important to remember when you consider…
Today’s retirees have much less than we’re told we need
A study released last year by the Government Accountability Office (GAO) gives more detail than any other source I know about the financial situation of today’s retired population. Specifically, the GAO provided details on those ages 65 to 74—which are the group I refer to when I talk about those who are retired.
What stood out more than anything else was a simple fact: 52% of households in this group have absolutely no retirement savings whatsoever.
That’s not to say that they don’t have any assets: 77% own their homes, and 49% have some sort of defined benefit (i.e. pension) plan , and almost all receive some sort of Social Security payment.
What about the other 48% who do have savings?
Well, it’s a mixed bag. As a whole, the median household in this group with some retirement savings has $148,000—enough to provide about $6,000 per year in retirement following the 4% rule. But they also have a median net worth of almost $600,000, with 95% owning their homes, and 58% with some sort of defined benefit plan . And again, the majority is collecting Social Security.
But we could get an even better idea by looking at the average nest egg in percentiles for this sub-group.
Source: Author illustration using data from GAO .
In the end, this means that only those who are in the top quarter of all savers—and the top 12% of all retirees this age—can provide a minimum of about $16,000 in income each year from their nest egg. When you factor in pensions, Social Security and other sources of income, it could easily add up to more than $35,000 per year—very manageable if one owns their home.
So where’s the money coming from?
The GAO offered up an even clearer visualization as to how these two groups can afford their respective lifestyles. The answer: it certainly isn’t coming from their nest eggs!
Source: GAO
As you can see, nothing is more important at helping retirees meet their needs than Social Security. Combining these two groups, it provides a whopping 44% of all income for those aged 65 to 74. Even amongst those who have done a good job of building up their nest eggs, it only provides a scant 9% of retirement income.
Here’s a twist, though: the defined benefit plans that offer up 17% of retirees’ income likely won’t be nearly as commonplace for today’s working population. And with almost 20% of income coming in the form of a wage or salary, we might be hard pressed to consider these people truly “retired”.
Put it all together and there are four conclusions I believe we can draw:
- Pinning down the financial situation of our nation’s retirees is very difficult.
- Figuring out what each situation means to each individual retiree is impossible.
- At the end of the day, the only thing that should really matter to the reader is what his/her own retirement will look like, and how he/she feels about it.
- Regardless of one’s political persuasion, the importance of Social Security to today’s retirees is undeniable.
