FREE NEWSLETTER
A 2021 Society of Actuaries study on retirement risk looked at retiree vulnerability to unexpected financial shocks. Forty percent of retirees reported experiencing some form of financial shock.
They reported that 11% of retirees reported financial shock that reduced their assets by more than 25%. Thirty-two percent of retirees said they could not spend $10,000 without it affecting their retirement security.
I think about financial “what ifs” all the time. I try to anticipate where money might come from to handle even something major like long-term care. My homeowners insurance on Cape Cod has a $35,000 hurricane damage deductible, that would be a (not insurmountable) shock, but still a shock.
I can’t conceive of an event that would reduce our assets by 25% except a major market crash – unless Connie gets tired of me after 56 years, then we are talking more like 50% and the Cape house is the first to go.
Those survey numbers are shocking to me. Think about it, a $10,000 financial emergency may affect retirement security. That is living pretty close to the edge in my opinion. It would be interesting to know the total financial picture for these retirees. Did they retire too early? How much income replacement did they begin retirement with?
Is it fair to judge? Were they fully prepared for retirement or is such a financial situation more typical than we may realize?
We will never know, but 32% with very limited resources is not good IMO.
Obviously, income and asset levels are important factors, but given the relatively high reported level of shock events – an admittedly relative term – have you contemplated your ability to deal with such situations?
Can you think of a financial shock not covered by insurance or cash reserves that would jeopardize your or a survivors retirement?
Let us begin this post with the following:
https://www.pewtrusts.org/-/media/assets/2016/06/payday_loan_facts_and_the_cfpbs_impact.pdf
This is a report from the CHPB, the regulator of Payday loan companies. The info is garnered from reports these lenders make to their regulator.
Per the report, 12M individuals use these lenders at least once each year. The borrowers are paying $9B in fees and interest. These are generally people who have maxed out their credit cards, and then still can’t make it until their next paycheck.
Per Nerd Wallet, 27% of those with credit card debt pay only the minimum.
Since the day I got a BankAmericard back in 1970, I have never paid a cent in credit card interest. I am sure that most of those who read HD have a similar history.
There is a great financial canyon in this country which divides the population into two groups; those with wealth and those without. When I was growing up, there was more of a third group, the middle class. My dad worked at Douglas Aircraft and I remember him coming home excited to have been promoted to a position in which he would make $3/hour. Mom was a secretary making $288/month. On this income in 1952 they were able to own one car, own a home they bought for $10,500 on the GI bill. We were not rich. They had no credit cards.
There is a story in the news today about Bank of America increasing teller pay to the $24-25/hour range because they are unable to keep these positions filled.
There is a lot of evidence around that a lot of people are really struggling and one cannot just dismiss it saying I don’t believe in surveys. Do you remember when you first started seeing beggars standing on the islands in the middle of roads with signs asking for $$?
I think many comments here and the definitions used for paycheck to paycheck make it plausible to question surveys such as those quoted.
Living to only pay for basic necessities with no money for anything else is one thing and no doubt there are people in that category, but it is not 70% or anywhere near it.
If the money available is all used each month including beyond necessity spending – even if on credit- that is quite another matter.
Further, if a family saves first, has emergency funds and retirement plans and then lives P to P, it is not a problem in my opinion assuming not paying credit interest. That is living within one’s means.
I go back to the macro view. Somebody, not the wealthy alone, is keeping businesses providing goods and services beyond necessities in business.
We got a bit off track here talking about paycheck to paycheck. Here is a typical definition.
”Living paycheck to paycheck means that an individual’s income is just enough to cover their basic expenses like rent,utilities, food, and transportation. There’s little to no money left over for savings or unexpected costs.
In essence, it’s a situation where a person’s income is barely sufficient to meet their immediate needs, leaving them financially vulnerable to any unforeseen circumstances.”
If that is true, there is no way the economy can keep humming along, DisneyWorld can be crowded, vacations taken or unnecessary stuff purchased if “most” or 70% of Americans live that way. It just doesn’t add up. 20% perhaps, but not near most or even half.