How to retire with no savings

Thousands of Americans are doing it.

Have you read the news lately? Soon-to-be retirees have saved almost nothing for retirement. No doubt that means we’ll soon have homeless Baby Boomers begging for change on the subways!

Ok, the second part might not happen. But given the press that this recent Employee Benefit Research Institute report has gotten, you’d be forgiven for thinking so.

Make no mistake, the numbers are terrible. Only 44% of Americans have more than $25,000 in savings. About 54% of workers older than 45 have more than $25k. And of actual retirees, only 46% have more than $25k in savings.

Using the rule of thumb that you can draw down 4% of your nest egg in retirement’s first year—faulty, but it’s a starting point—$25,000 in savings gives you about $1,000 in income. With Social Security, you’re probably talking $14,000 per year, which is puts you in the ballpark of the incomes in countries like Libya and Panama, depending on how you’re making your comparison.

And yet, these soon-to-be retirees and actual retirees are in the United States. Which begs the question: How are they doing it? And is life really so bad for poor retired people?

The life of a retired non-saver

First, let’s look at actual incomes of retirees as clues. A 2005 report by the Census found that the median income of someone aged 65 and older in 2003 was about $24,000—or $29,000 in today’s dollars. That’s a pretty severe drop off from the median $49,000 income that people aged 55 to 64 had.

Those age 65+ are also taking less of an income as they age. The same report found that the median household took about $33k in income between 65 and 69, but by age 75, the median household had an income of only $19,000.

About 17% of those 65+ live in or close to poverty, which is about the same as the population as a whole, but that was skewed by those over age 75. The real old-timers had a near poverty rate of almost 20%.

But on average, their living arrangements were fine according to the report…most had furnaces, A/C, a full kitchen, etc.

No, you’re not working until you die.

You might have heard somebody say something to the effect of “I’m probably going to work until I die”. Either that’s been a conscious choice (no point in saving!) or it’s a “reality” they’ve come to as 65 neared and they hadn’t saved nearly enough.

Except that’s not what actually happens. According to the Labor Department, fewer than one in five workers over age 65 have a job or are looking for work. Once you get to age 75, only 7% or so fits that profile. Slightly sadder, most of that 7% is looking for work but doesn’t actually have a job.

Age discrimination might be part of it. But so could mental or physical disabilities and the generally weak job market right now.

Whatever it is, most Americans older than 65 are unable or unwilling to hold down a job as they age.

Quick! Picture your perfect retirement.

Close? No? Well, when you ask people to picture a perfect retirement, most people have at least something related to travel.

Unfortunately, retirees aren’t actually doing it, at least not any more than the rest of us.

According to the Labor Dept., older Americans (65+) spent about 400 hours—or 16 days—on average on “Other Leisure” time, which basically includes anything that’s not T.V., socializing, relaxing, and reading. Even if all of that leisure time was devoted to travel, that’s not any more than the three weeks of vacation you’re probably earning by the age of 30. So much for that round-the-world trip!

So what are they spending time doing? They’re watching T.V.—about 4.4 hours of it per day. That’s quite a bit higher than the 3.3 hours Americans of all ages watch on a weekend day. By comparison, the older Americans spent less than an hour per day on average with friends.

So, let’s try that again. Quick! Picture your probable retirement!

You can file that under Sad, but True.

It’s not about “Your Number”. It’s about how you want to live.

Once you hit age 50, your chances of being jobless start to rise rapidly. You don’t get to choose when you retire. The job market or your ailing body will decide for you. Most retired Americans are getting by on incomes that you’d probably consider appropriate for the Third World. And even if they wanted to work until they died, they can’t.

Social Security allows them to live adequately, but not richly, and certainly not in the ways you dream about.

That’s why you’re saving for retirement. It’s not so you can retire. It’s so your retirement looks more like white beaches and blue skies than Monday Night RAW.