By For 72-year-old Jacqueline Withers, retirement has been rocky. And she’s not alone, as it turns out.
Eight years ago, the Jacksonville, N.C. resident stepped away from her job as a home healthcare aide because of a heart condition. She tapped into her Social Security. But it was not — then or now — enough to make ends meet. Her $1,700 monthly check only covers 90% of her very basic living costs. The remaining 10%? A measly pension takes care of that.
The trouble is, she said, “I don’t have enough income to pay my medical bills and buy decent food to live on.”
Retirement in America is a disaster for many like Withers. And no one — politicians, financial planners, pick your own expert — seems to know what exactly to do about it.
I have been covering all this for years as a journalist, book author, and public speaker. Trust me, the state of retirement in America has never been this bad since the federal law that molded the majority of today’s retirement landscape, the Employee Retirement Income Security Act, or ERISA, was signed into law 50 years ago.
Of course, the system has worked for many of us. Especially if you’ve been lucky enough to have worked for a company with an old-timey pension, received a match-enhanced 401(k) plan, and/or are a close relative of a Connecticut hedge fund guy.
And, for sure, there’s hope for the current generation of workers if there’s a will to fix the system and educate the masses. (Spoiler: It will be a tough slog to change things.)
Read more: Retirement planning: A step-by-step guide
The heart of the matter is this: ERISA, which was designed to protect our interests by overseeing things like 401(k) and pension plans, only works for some of us. It sets minimum standards for retirement plans in the private sector and requires plan administrators to act in your best interest. It does not, however, require any employer to establish a retirement plan.
There are reasons behind this mess.
Many small businesses, for instance, steer clear of the plans; owners claim they are too costly and complex to navigate. Another reason: Employers have slashed traditional pension plans over the years, partly because of those stricter ERISA rules and costs associated with those plans.
Those who won that traditional pension plan lottery were guaranteed lifetime income streams. Today, just 11% of private employees participate in traditional, or so-called defined-benefit, pensions, compared with around 35% in the early ’90s, according to Mark Miller, a retirement expert and author of “Retirement Reboot.”
Fix Social Security and Medicare?
The 2024 Social Security and Medicare Trustees Reports projected that in nine years Security Security’s key reserve will run low. The upshot is that unless Congress figures out a way to fix it before we hit that flashing light, benefits would potentially get slashed by 20% for seniors.
For years, there have been droves of solutions spinning about what could and should be done to prevent the shortfall, including ratcheting up payroll taxes that fund the program, currently 12.4% split evenly by employees and employers.
But tweaking Medicare is another issue and perhaps as urgent given the health care needs of boomers.
Remember those big long-term care bills I was talking about? This is a big one. Currently, Medicare does not pay for such care, so older adults and their families bear this financial risk directly. Medicaid covers nursing homes, but only after older adults spend down their assets to less than $2,000. This is probably a pipe dream, though, because it would be expensive to pay for it.
Another idea: Earlier coverage for Medicare benefits before age 65, the current age to enroll, would help folks save more for the future. It would also prevent them from draining their finances for medical bills.
A lot of people lose their jobs or take early retirement between the ages of 50-65 and don’t get full-time jobs with health benefits. If you’re self-employed, you can use the individual health insurance marketplace to enroll in health coverage, but I’ve been down that road in my 50s, and it isn’t cheap. My premiums topped $1,200 a month for a high-deductible plan, and I had no health issues.
Have a question about retirement? Personal finances? Anything career-related? Click here to drop Kerry Hannon a note.
Money 101
But the biggest long-term solution of them all might be this: Educate kids early on about how to manage money and save — and on the importance of participating in retirement plans.
Let’s have John Scott, director of Pew’s retirement savings project, tell us why.
“We need more financial education,” he told me. “If it’s delivered at the right point in time and in the right dose to use a medical term, it can be very helpful to people. So, for example, when people are retiring, it is good to know, you know, what is an annuity? You know, or get some information about what are my options for taking money out of my company retirement plan, or, or how should I be taking Social Security?”
It’s too late for Withers, but just in time for younger generations who may be about to fall into the same traps as their parents.
Finding a fiduciary financial adviser doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 financial advisers that serve your area in 5 minutes.
Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist, and the author of 14 books, including “In Control at 50+: How to Succeed in The New World of Work” and “Never Too Old To Get Rich.” Follow her on X @kerryhannon.
Click here for the latest personal finance news to help you with investing, paying off debt, buying a home, retirement, and more
Read the latest financial and business news from Yahoo Finance
