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The Silent Crisis and Nurturing Financial Security

  • 6 min read

We’ve discussed this topic extensively on our channel, but it’s crucial to delve into the realm of serious calculations when it comes to retirement. Even if retirement seems distant, it’s important to understand the future implications and consequences.

Retirement essentially boils down to a math problem:

Yet there are misconceptions surrounding the path to achieving financial security. In this article, we’ll explore how the population of the United States is placing itself in a precarious position, setting up for potential failure in retirement or financial security.

One of the articles we’ll examine focuses on a Wall Street Journal piece that discusses what retirement with less than a million dollars entails. While a million dollars may sound like a substantial sum, we’ll crunch the numbers and show that it’s merely a drop in the bucket for retirement. However, there is good news – we’ll explore how you can make up for it and still retire comfortably.

Experts are now highlighting a silent crisis in retirement, not just in the United States, but worldwide. The issue lies in the fact that people are living longer, and the cost of living is increasing. Even if you have $100,000, $200,000, or $300,000 in a 401(k) or other retirement account, it’s far from sufficient for retirement. You might think, “Well, I pay my bills, save my money, and have $200,000. That should be enough.” However, retirement assumes that you no longer have a regular income, and replacing that income becomes a significant challenge. In fact, more than half of US adults are jeopardizing their retirement due to unrealistic life expectancies.

Let’s look at it this way:

If you plan to retire at age 70 with a million dollars in the bank, how much can you spend each year for the rest of your life, assuming you live until 90? Many people nowadays are living into their 90s, even close to 100. So, let’s say you have 20 more years to live after retirement. If you retire at 70 with no income, relying solely on that million dollars, you can only spend $50,000 per year to cover your expenses until age 90. But consider this: if you’re currently earning $80,000 per year, taking home around $50,000 after taxes, that $50,000 per year in retirement is equivalent to an $80,000 income. Furthermore, expenses tend to increase during retirement because you have more leisure time. The notion that expenses will decrease is often untrue. Additionally, healthcare costs are likely to rise, and you may have deferred maintenance on your home. Even if your expenses remain the same, dividing a million dollars by 20 years gives you a mere $50,000 per year to spend before running out of funds.

So, what does life look like with less than a million dollars? Several examples in the article highlight the discrepancy between retirement expectations and everyday reality. People describe their concerns, ranging from health issues to hurricanes and heating bills. Annual spending becomes a significant challenge. Let’s take the example of a couple who had saved up $400,000 and spent $50,000 per year. They hoped to become snowbirds, splitting their time between Florida and Maine, but had to remain in Maine due to community ties and the need for healthcare in Canada. Their financial troubles were compounded by health issues and the downturn of the stock market in 2008. This serves as a reminder that economic fluctuations can impact retirement funds. Flexibility and resilience are crucial. Sometimes, you have to adjust your plans, transitioning from Plan A to Plan C or D.

The key to thriving in this environment:

Not to solely rely on savings like your 401(k), savings account, or CDs. If you only live off what you have saved, it’s akin to constantly draining a gas tank without ever refilling it. Just imagine filling your car with gas and never visiting a gas station to refill it. You can only go so far before running out of gas. Retirement follows a similar principle. You must replenish your income to extend the range of your retirement years. Even a small additional income, like $1,000 or $1,500 per month, can make a substantial difference. It’s like topping up your car’s gas tank; it prolongs your retirement by an additional five, six, or seven years. The possibilities are endless regardless of your age or the era you live in. 

You can learn a craft, create trinkets to sell online, offer consulting services, or engage in activities like knitting or leather crafting to sell on platforms like Etsy. The idea itself is inconsequential; what matters is setting it up a decade before retirement. The first two or three years of such a venture may not yield significant income, but starting early allows time to establish a reliable income stream. By the time you retire, you could have a thriving side gig, whether it’s repairing old radios, providing training, offering remote consultations, or creating Excel spreadsheets. Skilled and knowledgeable individuals are currently in high demand, and as a retiree, you possess valuable expertise and experience. While it may not replace a full-time six-figure income, having a discretionary gig that aligns with your interests can generate an extra $1,000 to $1,400 per month. That’s extra fun money, and if you build it up before retirement, let’s say over four years, that’s like adding another $60,000 to your retirement funds, not to mention the income you’ll continue to generate during retirement. It’s all about extending the range of your retirement and taking control of the looming retirement crisis.


The math behind retirement:

Planning is creating a silent crisis. Unfortunately, it remains invisible until it’s too late. By 2045, many people will realize they only have a few hundred thousand dollars left, and with annual expenses of $60,000, their funds will deplete within four years. It’s crucial to take action before it’s too late. Establishing a side gig or additional income stream early on, at least a decade before retirement, ensures you can sleep soundly at night. Retirement should be a period of relaxation and comfort, free from financial worries. By laying the groundwork for a secure financial future, you can cherish quality time with your family and enjoy the well-deserved fruits of your labor without constantly fretting about day-to-day expenses.


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