What if the ‘retirement crisis’ has been exaggerated?

How real retirees make retirement work

Shutterstock – The simple formula for a happy retirement.

Every year, there is a new story of the scary “retirement crisis” facing our country.

It makes you wonder how real retirees are making retirement work. Have they run out of money, or somehow, are they managing to get by?

To take a closer look at how real people make retirement work, The Society of Actuaries (SOA) has conducted a series of studies, the latest of which is their Post-Retirement Experiences of Individuals 85+ Years Old in which they conducted 62 in-depth interviews of individuals across both the U.S. and Canada.

The people interviewed were not wealthy and had done little to no financial planning but overwhelmingly disclosed they had adapted to their situation and had surprisingly few regrets. What? No crisis? How could this be?

The answer is simple. These retirees live frugally. They calibrate their expenses to the amount of income that comes in.

Could retirement success be that simple? In some cases, yes. You simply do what humans do well, you adapt. You maintain a short-term focus and make sure what goes out each month is no more than what comes in. The SOA research shows this works, and for the most part, retirees interviewed feel they live frugally, but are not uncomfortable. As the study describes, “Most had made peace with their standard of living a long time ago and learned to live within its constraints.”

If you’re a fly-by-the-seat-of-your-pants type, this approach to retirement might work. But what if learning to live within a set of budget constraints doesn’t sound so good to you? A different approach may be required.

As the slogan at my local gym says, “what gets measured, gets improved.” This mantra applies to retirement as well as to your workout program. For example, according to the 2017 Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI), workers who have a retirement plan are far more likely to feel confident about having enough money for retirement. That makes sense; retirement plans report your total savings to you on a regular basis. They measure for you. And there certainly can be something magic about watching your savings grow. As you start to have success, you want more success. It feels good.

Another thing that stood out in the EBRI study was the level of confidence expressed by those who were already retired. The report says “Seventy-nine percent of retirees report feeling either very or somewhat confident about having enough money to live comfortably throughout their retirement years.”

Once again, that doesn’t sound like a crisis.

In both the SOA and EBRI study, health care expenses seemed to pose the biggest threat to the comfort level expressed. In the SOA study, although interviewees expressed satisfaction about their situation, many had not thought about long-term care expenses and had no clear plan for handling things as their needs changed.

In the EBRI study, “Among those who say that their health care or other expenses were higher than they expected, 50% say they coped with these higher-than-expected expenses by adjusting their budget, adapting, managing, and living within their means.”

Overall, it seems the retirement planning tool that the press rarely discusses is the one most widely used — living within your means.

Planning, of course, can help make the “means” within which you must live a larger number. And for those who don’t plan, well, as we all do, you’ll adapt. That’s how real retirees make retirement work.

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