Why Seniors Are Not Generating Enough Retirement Income

Editors' pick: Originally published May 25.

U.S. retirees have a problem and it's a big one: they're not generating enough income to live on in retirement.

At best, U.S. senior citizens are living on about 60% of their pre-retirement years income, according to a new report from Bankrate.com. Most financial experts believe retirees need at least 70% of the income they earned in their working years.

According to data, seniors in 47 states and the District of Columbia aren't replacing enough of their pre-retirement incomes, the study adds. Retirees in just three states - Hawaii, Alaska and South Carolina - have saved enough to meet the 70% retirement income threshold. Geographically, the top 15 states showing the largest retirement income gaps are all located in the northern half of the U.S., with Massachusetts grabbing the top "income gap" spot.

The Bankrate data paints a grim picture of U.S. retirees and their income needs - and income realities - in their post-working years.

"These numbers help illustrate how underprepared many Americans are for retirement," says Greg McBride, CFA, Bankrate's chief financial analyst.

In the study, time is a big issue when it comes to retirement income shortfalls.

"Low retiree incomes are largely traced to a low rate of savings during the working years, particularly in the early career years. Americans' biggest financial regret is not starting to save for retirement earlier," offers McBride.

All is not lost, though; seniors can catch up on financial savings, even as retirement approaches.

"Save more by utilizing the catch-up contributions to 401k(s) and IRAs that kick in at age 50," he adds. "Consider working longer to give yourself more time to save, your assets more time to grow, and reducing the amount of time the assets will need to support you in retirement. Also, delay taking Social Security as much as you can. Each additional year you delay taking Social Security up to age 70 results in a permanent pay raise."

Scott Vance, a financial advisor at Trisuli Financial Advising, in the greater Raleigh, N.C. area, says U.S. retirees are under "pressure" to replace their pre-retirement income. "I'm referring to the growth of people, who during the period of their lives when they should be putting a very large percentage of their income away for retirement, are losing focus," he says.

"Consequently, the combination of helping elder parents, who are living far longer and whose retirement income has not been lucrative, and helping children who are trying to fund college is squeezing most Americans," Vance says.

Health care costs have skyrocketed, too. "Even if costs had remained constant, the simple fact that Americans live longer lives would put a strain on retirement funds," he adds. 

One "fix" Vance is recommending to his clients is to lock in income streams, sooner rather than later. "On top of any pension and Social Security income, I advise my clients to consider how much income they'll need and ensure the base guaranteed income streams meet that need," he explains.

"Retirees have to figure their expenses, then build the income streams to meet that need," he adds. "One tool I have used on top of the Social Security and pension is a single premium fixed annuity help close the gap," he adds.

In the end, perhaps it's only a mindset that's preventing seniors from generating the income they need in retirement.

"The answer to the retiree cash shortfall is pretty simple," notes Ilene Davis, a financial advisor with Financial Independence, in Cocoa, Fla. "Seniors are paying everyone else before they pay themselves. If each U.S. adult would set aside 10% of their income from they day they start working, and invest it on a systematic basis into a growth fund, they would likely end up with a decent nest egg over a 20- to 40-year career."

"Sadly, though, many people are too busy spending more than they earn, often to appear to be rich, rather than to actually become rich," she adds

As the Bankrate study shows, that's no recipe for a decent income in retirement.

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