Why American Seniors Retire Poor

Reports say that less than 5 percent of Americans will be financially free by the age of 65. Changes in the U.S. economy coupled with increased health care costs and lack of personal savings have put millions of American workers at financial risk as they approach their retirement years. According to a study published online at cnbc.com, nearly 40% of America’s middle-class will experience poverty in retirement. Why?

One reason is that few Americans clearly define what financial freedom means to them. The definition is a wide array of personal opinion, but there is an economic equation that can easily encompass the most basic standard set for financial freedom; P.I ≥ L.E. Translated it means passive income = lifestyle expenses. An individual’s passive incomes from assets need to be equal to or higher than the income you require to afford your chosen lifestyle. Many people retire poor because they did apply this fundamental equation to their financial future. Some individuals are too disinterested to engage in financial planning or too lazy to be proactive and productive. The adage, "failing to plan is planning to fail" sadly applies to many Americans' retirement strategies. Hoping things will work out is not a strategy any more than planning on winning the lottery is. Individuals must establish their goals and ruthlessly and relentlessly pursue them.

Every American has a different financial reality, and much of it is derived from the mindset they choose to adopt regarding finances. Consciously, as well as subconsciously, rich people think like rich people and poor people think like poor people. What you manifest is what you see and in turn, what you become. This mindset is why so often lottery winners go bankrupt after “hitting it big” and why wealthy people who go bankrupt often go on to develop a new fortune. Keep your mindset focus positive and reinforce your short and long term financial goals daily. Your attitude can determine your altitude.

Many Americans who retire poor chose the “let’s just wing it” path or did not attain sound and conservative financial management help. Do not be influenced by other poor people. Surround yourself with successful friends and family and learn from them. You can model their behavior in your own life. Retain a trusted accountant, banker, or financial advisor who can tailor your individual financial needs into an easy to follow set of steps and apply them. It does not have to be overly complicated and sometimes, the more straightforward the approach, the better. If you learn from successful people and sound financial consultants, you stand a better chance of becoming financially free. 

Some Americans stick their heads in the sand and never confront the facts of their financial reality. These are the people with stacks of unopened bank statements in their homes. While it can be painful to address a bleak economic reality, it is worse to have an inherent aversion to tackling the task at hand. You cannot abdicate your financial situation to anyone. You can receive trusted advice and help but do not avoid facing the truth of your finances. Oversight avoidance is how some famous athletes and performers have made vast fortunes but managed to squander every last cent. No one should care more about your financial freedom than you do.  

Many people who retire poor did not save any money, and those who inherited wealth squander instead of saving in the name of immediate gratification of a new car, or large home. Extravagant expenditures feel great at the moment, but the goal is to live beneath your means. Make saving money your number one habit. People who are successful at saving sometimes make a game of it like shopping online for the best deals or using coupons. Small savings during purchasing not only add up over time, but they also reinforce the habit of saving money. When you save money, you can apply the power of compound growth. Many people who retire poor do not understand how valuable the concept of compound growth is. It can take modest savings and in time, create wealth. Sadly, many Americans understand the concept of compound growth from the wrong side of the equation. Generally speaking, Americans are debt slaves. They rack up credit card debt and pay services charges, which are the bank lending industry's compound growth money maker. People retire in poverty because they are on the wrong side of the compound growth equation.

Without the saving habit, compound growth equation, living beneath your means, and acquiring as little debt as possible you wind up working for money instead of money working for you. It is essential to assess the three following ways income can manifest itself in your life. There is earned income, which generally is in the form of a paycheck or salary for services or products provided. Then there is portfolio income which represents stocks, investments, and pensions. Finally, there is passive income, which comes in the form of royalties, patents, online services, or rental revenues, to name a few. These multiple streams of income can make retirement far more comfortable than relying on a modest pension and ever declining social security benefits check. People who retire rich have multiple streams of income, giving them a real path to financial freedom. People who retire in poverty continue working for money without the benefit of alternative sources of revenue.

There is little excuse to lack the knowledge and skillsets to become financially solvent in the digital age. Americans who struggle financially in retirement did not take the time to become financially educated. Being ignorant about finances is a sure way to retire poor. Online and for free, you can find many websites that generate articles about financial education. It comes as no surprise that people who retire with financial problems have the worst reading habits. If you don’t enjoy reading try financial literacy games for adults or learn through online seminars to boost your financial understanding. Even with financial knowledge if you lack a plan and the will power to follow it, you will retire without economic freedom. The practical application of your plan is crucial. Most Americans do not make a plan for their retirement, and many that do begin too late to affect a substantial change because compound growth and accrual of wealth take time. However, it is better to start your retirement plan late than not at all.

Ultimately the choice rests with the individual. Most Americans would rather retire with adequate incomes for a comfortable retirement lifestyle. Remember that you are not a product of your circumstances; you are a product of your decisions. Make the right decision today for your financial freedom in retirement. Please contact our Denver office at (303) 337-2400 to discuss your needs and how to plan for long term care.