Over the course of their 60-year marriage, Bernard “Bernie” Karpinkski and his wife, Violet, took few chances when it came to their retirement.
“From the time we were married, we started saving,” says Bernie, 89, who lives in Pueblo, Colorado. “We lived much more conservatively than most people. We had three cars our entire lives and drove them until they had close to 200,000 miles on them before we bought another. We didn’t buy our second home until we had enough saved to pay cash.”
While their friends moved into bigger homes, took vacations and put their life on plastic, Bernie and Violet used a 50/50 income split — they lived off of Bernie’s income as an electrician and put every dollar Violet earned from her job as an office secretary in the bank.
“We lived conservatively and saved for our retirement years so we could travel,” Bernie told Yahoo Finance.
They succeeded but things didn’t work out quite as planned. Not long after Bernie punched out of work for the last time, Violet was diagnosed with Alzheimer’s disease. After more than a decade helping her battle the disease along with a slew of other medical issues, Bernie had no choice but to move her to an assisted living center in 2011.
"Social Security and my pension didn't begin to take care of the cost," he said. Medicare wouldn't cover her expenses either. So instead of cruise ships and hotel stays, Bernie poured their life savings into a $6,700/month room in the center’s dedicated Alzheimer’s wing. "It was only because of our savings that I could do it."
Retired and broke
More than 90% of people over age 65 currently receive Social Security benefits, without which a surprisingly large number of seniors would be destitute.
Despite the fact that it was never meant to act as a main source of income, nearly one in five married retirees and one in two unmarried retirees say they rely on Social Security for the bulk of their income, according to the U.S. Social Security Administration.
“Some things in life really are impossible. Living exclusively on Social Security income is one of them,” says Bedda D'Angelo, a fee-only financial planner from Chapel Hill, N.C.
The average monthly benefit for someone who starts taking Social Security at age 62 in 2014 is roughly $1,992 — not even enough to keep them above the federal poverty line.
John Enguarda, 80, who lives in New York City, found himself relying entirely on Social Security when he lost his pension and job as a waiter in the executive dining room at Bear Stearns when the global investment bank went under in 2008.
“Social Security pays my rent and then I have a few hundred dollars left for the rest of the month to live off,” he told us. “All my friends that are retired are living on Social Security.”
Enguarda could arguably save on rent if he moved out of New York City to pursue more affordable pastures, but the reality is that retirement is exactly the time when people would rather stay close to their roots.
A Jan. 2014 Census report found only 15.2% of Americans aged 65 to 74 moved between 2005 and 2010. Those over 75 years old were even less likely to move, with an 11.9% chance.
The high cost of early retirement
A dreadful national savings rate coupled with the fact that Americans are living longer and paying more to keep themselves healthy have only made retirees more dependent on public resources.
Faced with the choice between taking their benefits early or waiting to max them out, many consumers simply don’t have the patience — or financial security — to stick it out.
“Ideally, you want to wait, but when you’re talking about [seniors] who haven’t saved a whole lot and are expecting Social Security to be their income replacement, it’s just not [enough],” says Eric Ross, a CFP based in Cincinnati, Ohio. “You need to have saved additional assets outside of that because it isn’t going to cover it.”
Health care costs alone can reach up to $220,000 for retirees, according to a Fidelity study. And more than 70% of retirees will need some type of long-term care that won’t be covered by Medicare.
If a worker were to retire at age 62 this year, she’d only stand to earn $1,992 a month in benefits. She would earn $2,431 by waiting to collect until age 65 and more than $3,500 a month if she were to wait until the maximum age of 70.
The challenge for advisors is getting people to save enough in their working years so they won’t be tempted by early withdrawal.
How to make Social Security last
Dan Katan, a CFP based in Minneapolis, Minn., has dealt with his fair share of seniors who wind up living on Social Security. He prescribes three ways to stretch their income:
1. Re-evaluate your Medicare plan each year during the annual open enrollment period (Oct-Dec). The plans change annually in terms of what they cover, while people’s health and financial situations also change. It’s also important when on a fixed income to model out when Medicare expenses hit – a high deductible early in the year or larger payments on a quarterly basis for mail-order prescription drugs can both wreak havoc on a budget
2. Maintain/improve your credit scores. With people living longer, they may need to finance a new car or other large purchase. Those that let their scores slide may pay higher interest than necessary.
3. If your income is quite low, check to see if you qualify for supplemental nutrition assistance programs (i.e., food stamps), Medicare Savings Programs and/or a program called Extra Help that’s available from the Social Security Administration to reduce Part D prescription drug costs.
And if worse comes to worst: Relocate
“Housing is one of the largest expenses retirees incur and they should look to reduce this to help cover living expenses,” says Martha Ferrari, a financial planner based in New Jersey.
Looking for a few ideas? See the map above for a list of the 10 most affordable cities in the U.S., according to the Council for Community and Economic Research’s latest cost of living index.
Thanks to technology, rapidly advancing health care options, and the ease of traveling internationally, retiring abroad is also becoming a more viable option for seniors. Maybe you can't afford that beach house in California, but you could get more for your money in Panama and Ecuador, both of which topped International Living's 2014 list of best countries to retire.
“While it is difficult to make this kind of change, is it worth maintaining a three-bedroom home when you could instead have money for other priorities?" says Ferrari. "Let someone else paint the house, fix the roof and mow the lawn.”