Could You Survive a Sixty Percent Pay Cut?

Millions of Americans are sleep-walking into a financial nightmare. If your income suddenly dropped by sixty percent would you still be able to make ends meet? What if your car stopped working or you broke a leg and couldn’t do your normal errands?  A sudden income drop is a scenario that’s far more realistic than many realize and yet this reality just doesn’t seem to be sinking in.

According to government statistics, nearly half of Americans over 65 are counting on Social Security for the bulk of their retirement income. Looking at the years ahead the news isn’t much better. Collectively, America is seriously short on retirement savings, with a full third of the population having nothing set aside for retirement, including a quarter of us over forty-five.

Too Much Reliance on Social Security

Social Security was never intended to be a retirement plan, even the Social Security Administration is right upfront about that on its website. It was designed to be supplemental retirement income when you get to the age when you can no longer work. Yet, for nearly a quarter of all Americans, that’s all they have. Some need food stamps on top of that just to be able to eat.

Pensions Disappearing, Companies Evading Responsibility

When Social Security was drafted, most Americans were covered under some of kind of employer pension plan. Few could foresee corporate America wiggling out of their obligations by dumping these pension plans on the U.S. government’s Pension Benefit Guaranty Corporation; essentially foisting their payment responsibilities onto U.S. taxpayers as a way to cut costs. But time and again Congress let them get away with it. Today, unless you’re in law enforcement, a firefighter or one of these errant company execs you likely have not even worked at a company that offers a pension plan.

Seniors Living Below the Poverty Line

Overall Social Security provides only about 35-40% percent of pre-retirement income. That leaves many Americans trying to figure out how to get by on a sixty percent pay cut and the reality is they’re coming up short. Since women tend to earn less, particularly in the Baby Boomer generation now retiring, and they also tend to live longer, it’s hardly surprising that nearly seventeen percent of unmarried women 65 and older live below the poverty line. Too many people are expecting their expenses to go down in retirement and that just doesn’t happen.

What Will Your Life Be Like in Retirement?

Most people will need about 70 percent of their pre-retirement income to maintain their lifestyle. But if you imagine a luxe retirement filled with days on the golf course, travel and spoiling the grandkids, then you’ll need to aim higher. That also assumes you’re in good health and don’t run into any major medical expenses. The vision of retirement that more than half of people have today is pure fiction. Those behind on their retirement savings or with none at all should imagine themselves working an endless succession of increasingly menial jobs in retirement until they’re too old to walk. While that may sound like a scare tactic, it’s a sadly realistic prognosis for millions.

You Can Change Your Future

Even if you’re in your forties, it’s possible to make a lot of progress toward building up your retirement nest egg. For every $100 a month you invest at even a meager five percent return, you can have $40,000 in a retirement account by the time you’re in your sixties. If you can swing $300 a month, that’s $120,000 in twenty years. That’s not ideal, but it’s light years ahead of where you would be if you hadn’t saved anything. Put that money in a well diversified investment portfolio, with a blend of stocks, bonds and liquid hard assets and you could do even better.

If you’re over 50, the IRS lets you put even more money away for retirement, so be sure to take advantage of the opportunity. Far too many people are counting on a program that was only designed to supplement their income, not replace it.  And frankly, you deserve better than poverty in your senior years.

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