The Rise Of Poverty In Retirement For The Middle Class

Baby boomers are speeding towards retirement at an average rate of around 10,000 people a day. But rather then crossing over this threshold to an anticipated life of doing whatever you like, many who are considered middle class may be facing a much nastier reality. Finishing their lives either in or near poverty.

Research from the Schwartz Center For Economic Policy Analysis shared that “40% of older workers and their spouses will experience downward mobility in retirement“.

They further projected that if workers currently aged at 50-60 retire at age 62, 8.5 million people – or 40 percent of these workers and their spouses – will have incomes that fall below twice the US Federal Poverty Level ($23,340 for a single individual, and $31,260 for a couple) when they retire.

This situation is also projected to be even worse for singles retiring as frequently in a separation situation, the one who is less wealthy is left in a difficult financial situation (often women) and singles also receive less pension benefits.

You just add these new potential numbers of the middle class heading towards poverty to the 6 million in the United States currently over 65 living in poverty and it’s hard not to realize this is a significant issue.

This is definitely not the image the majority of us have of what our retirement will be like.

What is also worrying is that even though people may then need to work longer, often this actually isn’t possible. Poor health, available opportunities, limited skills and ageism can have a limiting impact.

The reasons for this financial insecurity are many. For example, many cite the changes to pension plans as being a large contributor. For the few remaining that still have a Defined Benefit Plan (DB), many of these pension plans have been reduced over the years. For those that may be on a Defined Contribution Plan (DC), they have not necessarily invested or have saved enough for retirement.

Plus there are those that don’t have any type of pension plan at all and also haven’t saved. This may leave many depending solely on social security – which may potentially provide the bare basics for survival but doesn’t provide for a necessarily comfortable retirement. There are also a number of other contributors that require extra funding in retirement that weren’t considered in the equation before;

We are living longer.

However along with these extra years, we need extra dollars to fund us in retirement. The World Economic Forum now estimates that people will outlive what they have saved for retirement by approximately ten years

Healthcare costs are increasing.

Medications, surgeries, caregiver support all can add up and very quickly. Some research from Fidelity estimates that the average US couple will need $285,000 in retirement to pay for their healthcare costs (and this does not include long term care)

Supporting adult children.

According to a survey conducted by Bankrate, 51% of those surveyed shared that supporting their adult children has caused them to limit their own retirement savings.

But why are we not hearing or talking about this situation more?

There may be a couple of factors that could be having a positive impact.

First, the largest intergenerational wealth transfer is currently underway and this may not be calculated in these financial projections. It’s estimated that there will be $36 Trillion (yes, that’s a “T”) distributed through inheritances over the next thirty years. The average age of someone receiving an inheritance is 51 and 25% of these are going to someone over the age of 61.

As well, the average amount being passed down is $55,000 which is actually now helping to support people with both their medical bills and funding their retirement.

Also, baby boomers are sitting on massive amounts of real estate. Two out of every five homes are currently owned by baby boomers. There is some risk to these assets however. When baby boomers do decide to sell, the anticipated value may not be there as there may then be a surplus of housing at that point.

So should we be concerned?

Probably. If the projections are anywhere near being correct, we may have a pot that is on a slow simmer right now but may soon start boiling over and we just won’t have a lid to contain it.