Live within your means, and debt-free. That’s the advice everyone should adhere to. A debt-free life will reduce stress and provide peace of mind.
Many Americans struggle to achieve financial security, and as they get older, it becomes even more difficult to do.
Alexander Tanzi reports in Bloomberg, that the majority of Americans 65 and older are at “risk of not being able to pay for basic needs.”
That’s according to new estimates of financial insecurity among Americans 65 and older from the Gerontology Institute at the University of Massachusetts Boston.
The Elder Index calculated by the university and other researchers tracks the income needed for older adults in good health. It shows that on average a single person without a mortgage requires $21,012 per year to pay for basic needs, or $31,800 per couple. Regional price variations change the estimates significantly.
The estimated budget covers basic needs such as housing and food but excludes vacations, restaurant meals or entertainment expenses. Regionally, the cost of living independently ranges from $21,504 for singles renting in Alabama to a high of $33,060 in the nation’s capital.
States in the Northeast comprise the majority of the 10 states with the largest elder economic insecurity rates. The costliest states also break down overwhelmingly as those that tend to vote Democratic, while the most affordable generally lean Republican.
Most older adults rely on Social Security as a key component of income, but on average more than half who live below the Elder Index rely on Social Security for at least 90% of their incomes.
“As an increasing number of Baby Boomers retire, we’ll see more and more Americans struggle to get by on just their Social Security checks,” said Rep. Carolyn Maloney of New York, a Democrat and vice chair of the Joint Economic Committee, in emailed comments.
While the research highlights the economic security challenges for many older adults who live independently, the situation is likely even worse for those who aren’t in good health.
Research like this explains why many Americans will never retire.
I’ve explained the savings trend known as FIRE, financial independence, retire early. I’ve told you that it doesn’t sound like a great idea to drop out of the workforce with five more decades of life expectancy, but the saving principles of FIRE, when applied to a full life’s worth of employment, could help prepare you to live a retirement of financial freedom.
Most importantly, you need a plan. Only 41% of Americans try to make a plan, and that’s far too few. If you don’t look closely at how much you earn, what you expect to earn in the future, and how much you’ll need in retirement, you’ll never understand what you need to save.
The best way to get on track is to talk to an advisor who will help you reach investment goals for real, not only in theory. Start today.