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What Happens if We All Run Out of Money for Retirement?

Geoff Williams

If you're afraid you haven't saved enough for a secure retirement, you're not alone.

Americans are increasingly anxious about acquiring the financial resources and savings necessary for a solid retirement foundation. In fact, a 2016 survey of more than 3,200 Americans from the financial firm Allianz found that more than 60 percent of baby boomers fear running out of their savings more than death. So, chances are you're wondering what could happen if the so-called retirement crisis, in which people no longer have the financial capacity to support themselves, comes to fruition in the future. How will the country address Americans outliving their retirement savings and what might retirement look like in years to come?

To help you navigate the transition, we tapped experts for their insights on potential trends, along with strategies for staying prepared to ensure retirement security.

[See: 10 Ways to Gradually Retire.]

The Landscape: A Retirement Savings Gap

The 2017 Annual Transamerica Retirement Survey of 6,372 American employees over the age of 18 found that 57 percent of Generation X respondents and 55 percent of baby boomers cite outliving their savings and investments as one of their greatest retirement fears. According to the survey, 47 percent of millennials have similar concerns. The report also found that baby boomers have saved an estimated median of $164,000 in all household retirement accounts, Gen X has saved an estimated median of $72,000 and millennials have saved an estimated median of $37,000. Conventional wisdom suggests that retirees have $1 million in their bank account when they retire, but many experts have suggested that amount is not enough. Why? If you assume you withdraw 4 percent of your retirement savings every year, which is what most experts suggest, and you adjust for inflation, you would have around $40,000 to live on annually. While an adequate amount to save each year hinges on the individual and his or her lifestyle, to live comfortably, you'll likely want to aim for more than $1 million in savings.

The Future of Retirement

Last year, the U.S. Government Accountability Office prepared a report on the nation's retirement system and urged Congress to take a look at revamping how the nation saves for retirement. While Social Security is projected to be unable to pay full benefits starting in 2035, the problem goes beyond Social Security issues. Private employer-sponsored plans that offer traditional defined benefits are declining. And while pension plans that are defined contribution plans are on the rise, many individuals aren't saving enough, the report stated. Individual's retirement savings plans are "often low or nonexistent," the Government Accountability Office report stated.

Video: Tips to Get Started on Retirement

Many professionals tasked with helping future retirees are pessimistic about how everyone will fare as a group. "Pensions are all but extinct, Social Security will be poorly funded for future generations and the gig economy has moved workers away from W-2 employment where retirement savings plans like 401(k)s aren't offered," says Jadon Newman, founder and CEO of Noble Capital, an investment firm in Austin, Texas.

[See: 10 Ways to Increase Your Social Security Payments.]

"The burden of caring for [retirees] will primarily fall on public assistance and government entitlement programs, particularly Medicaid. With the cost of Medicaid already predicted to spiral upward over the next several decades, the cost of long-term care for future retirees will put substantial, additional pressure on the federal and state governments to rein in costs," says Kevin Fields, a financial planner who owns Fields Financial Planning in Westerville, Ohio.

It won't just be a crisis where a lot of people are hurting on an individual level; eventually, the retirement crisis will impact the nation's economy, Fields says. "If Medicaid's long-term care assistance is severely curtailed by legislators, many retirees will face a dire situation."

Fields predicts that the health care system will be significantly strained to care for retirees with chronic illnesses. He also predicts that family members will be required to provide an even larger share of long-term care. "The economic impact could be severe, as health care costs spiral out of control and family members are forced to leave the workforce in even larger numbers to provide care," Fields says.

The retirement crisis is already happening, Newman says, "As retirement financial advisors, we meet every week with clients who we must have hard conversations with about their retirement outlook."

He says that many of his clients' dreams and lifestyle goals are going to fall short of what they had been envisioning -- and some will work far longer than they anticipated. Others, he says, will have to simply downgrade the type of life they wanted to have, "particularly if they end up relying on Social Security and Medicare."

A Solution for Gaining Retirement Security

The Government Accountability Office's suggested goals that Congress should work on include promoting universal access to a retirement savings plan, removing some of the complexity and risk in retirement plans and stabilizing federal retirement plans. But for now, it's essentially every retiree for him or herself. In other words, keep saving money, and if you haven't yet grown your retirement fund, start.

For those in Generation Z who are still in school, Fields says that he'd like to see financial literacy as a required class in all public schools. "The government should also initiate an education campaign in an effort to boost the individual savings rate," he says.

But there may be one saving grace for the baby boomers who haven't yet retired. "There aren't enough Gen Xers to fill the positions that are being vacated by retiring baby boomers," says Terri Munro, president of the Financial Planning Association of Georgia, which is located in the city of Woodstock.

The baby boomers who want to remain working or in a semi-retirement phase may be able to continue making a living, Munro says. "Companies are responding by offering more flexible work roles including part-time and consulting positions that accommodate the new vision for retirement." While it may not sound appealing to work in retirement, as people live longer -- and stay healthier longer -- staying employed part time is a simple way to make decent money and avoid worrying about depleting your savings quickly.

[See: How to Pay Less Taxes on Retirement Account Withdrawals.]

Munro, in any case, chooses to try and look at the future optimistically. "In a way, rather than a crisis, the changes in the retirement landscape are more of an evolution, as thoughts of what retirement looks like change," she says.

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