167

I'm not sure if this is a naive question. I'm struggling mightily with a family member (and everyone has a similar story) who just cannot make the right financial decisions. This person will forever live paycheck-to-paycheck and will probably continue to file for Chapter 7 bankruptcy every 8 years.

What happens? I can only see a few outcomes:

  1. never retire

when you are finally unable to physically work:

  1. rely on public assistance and/or family until you die
  2. if that fails, you are homeless

Is this pretty much the destiny of everyone who cannot save for retirement? Do most people really never retire?

What really happens?

  • 4
    I think you got the whole picture correctly. People have to eat until they die, that food may come from their relatives, from the government (if it is the case) or from the trash if there is nowhere else to go – fernando.reyes Apr 26 '17 at 18:11
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    I don't have a good answer, but I don't think the existing answers address enough that (1) the biggest factor in what happens is probably whether or not they own a house they can live in, and (2) it also varies hugely by where they live or want to live, since both the assistance programs available and the cost of living vary wildly. – R.. Apr 26 '17 at 19:46
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    You might find this question to be useful: money.stackexchange.com/questions/73754/… Your relative is hardly alone; more than a quarter of Americans close to retirement age have a negative net worth, and easily three quarters do not have enough to fund a retirement. The 401k program has been a disaster. – Eric Lippert Apr 26 '17 at 21:16
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    When you see poor people take decisions that appear stupid, do keep in mind that poverty physically affects the brain. – gerrit Apr 27 '17 at 18:02
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    I'd really like to see an answer with an objective look at what actually happens, like with actual numbers and stuff. – Phil Frost Apr 28 '17 at 5:43
36

Well, if you worked in the United States you have social security, and medicare and medicaid in most cases as well. So you have a small amount of income to spend every month to cover your most basic living expenses, as well as your basic medical expenses. At least, that's the idea.

In reality, it probably isn't anywhere near enough money for most to live comfortably. Also, there is a real fear that the US will have to inflate itself out of its debt to some extent in the future. This theory implies that the money retired individuals have saved or are receiving down the road could buy significantly less in the future than they expect.

If you have the ability to put money away into an IRA or 401K early in your life, it will be greatly beneficial to do so. However, that is another issue I won't begin to discuss fully here.

Edit since your question was restated after I typed my initial response, the final answer is: You will receive some assistance from Social Security, Medicare, and Medicaid. You will most likely need to either continue working, draw on savings such as an IRA or 401k, or will need assistance from others. If none of those are options, you would most likely end up living in poverty or worse.

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    Social Security benefit is increased yearly for inflation, called COLA (Cost Of Living Allowance). Medicare historically has more or less tracked medical costs, which have usually grown faster than overall inflation, although a variety of schemes have been tried to limit or restrict that growth, none yet clearly successful. – dave_thompson_085 Apr 26 '17 at 18:59
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    @dave_thompson_085 Social Security is a slippery topic that's hard to get a firm grasp on. It is adjusted for inflation (COLA) but that calculation is debatable. Last year there was 0 adjustment, this year only a 0.3% adjustment. Additionally, IMO, we may see that aspect diminished as a necessary evil in the future; instead of seeing the entire program revamped or even defunded. That is all conjecture though, of course. But it is a bigger problem than most people admit, as the baby boomers reach retirement age and average life expectancy is now ~85. Something has to give. – Keith Apr 26 '17 at 19:34
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    Also worth considering: CNN : "Social Security trust fund projected to run dry by 2034 [...] That doesn't mean retirees will get nothing by 2034. It means that at that point the program will only have enough revenue coming in to pay 79% of promised benefits." – njuffa Apr 26 '17 at 21:07
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    @dave_thompson_085 It doesn't really matter...but, for the record, COLA is the: Cost of Living ADJUSTMENT. ssa.gov/cola – Keith Apr 26 '17 at 21:09
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    @njuffa It's a mess. Also, there is some debate as to whether or not Social Security is guaranteed by the federal government for eternity, for those that have already contributed. Or not so much. – Keith Apr 26 '17 at 21:11
176

I'm afraid you have missed a few of the outcomes commonly faced by millions of Americans, so I would like to take a moment to discuss a wider range of outcomes that are common in the United States today. Most importantly, some of these happen before retirement is ever reached, and have grave consequences - yet are often very closely linked to financial health and savings.

Not planning ahead long-term - 10-20+ years - is generally associated with not planning ahead even for the next few months, so I'll start there.

Unexpected Life Event Risk

The most common thing that happens is the loss of a job, or illness/injury that put someone out of work. 6 in 10 adults in the US have less than $500 in savings, so desperation can set in very quickly, as the very next paycheck will be short or missing. Many of these Americans have no other source of saved money, either, so it's not like they can draw on retirement savings, as they don't have that either. Even if they are able to get another job or recover enough to get back to work in a few weeks, this can set off a desperate cycle.

Those who have lost their jobs to technical obsolescence, major economic downturns, or large economic changes are often more severely affected. People once making excellent, middle-class (or above) wages with full benefits find they cannot find work that pays even vaguely similarly. In the past this was especially common in heavy labor jobs like manufacturing, meat-packing, and so on, but more recently this has happened in financial sectors and real estate/construction during the 2008 economic events. The more resilient people had padding, switched careers, and found other options - the less resilient, didn't.

Especially during the 1970s and 1980s, many people affected by large losses of earning potential became sufficiently desperate that they fell heavily (or lost their functioning status) into substance abuse, including alcohol and drugs (cocaine and heroine being especially popular in this segment of the population). Life disruption - made even more major by a lack of savings - is a key trigger to many people who are already at risk of issues like substance addiction, mental health, or any ongoing legal issues.

Another common issue is something more simple, like loss of transportation that threatens their ability to hold their job, and a lack of alternatives available through support networks, savings, family, and public transit. If their credit is bad, or their income is new, they may find even disreputable companies turn them away, or even worse - the most disreputable companies welcome them in with high interest and hair-trigger repossession policies.

Desperate Cycles

The most common cycle of desperation I have seen usually starts with banking over-drafts, and its associated fees. People who are afraid and desperate start to make increasingly desperate, short-sighted choices, as tunnel-vision sets in and they are unable to consider longer-term strategy as they focus on holding on to what they have and survival.

Many industries have found this set of people quite profitable, including high-interest "check cashing", payday loans, and title loans (aka legal loan sharks), and it is not rare that desperate people are encouraged to get on increasing cycles of loan amounts and fees that worsen their financial situation in exchange for short-term relief. As fees, penalties, and interest add up, they lose more and more of their already strained income to stay afloat.

Banks that are otherwise reputable and fair may soon blacklist them and turn them away, and suddenly only the least reputable and most predatory places offer to help at all - usually with a big smile at first, and almost always with awful strings attached.

Drugs and alcohol are often readily available nearby and their use can easily turn from recreational to addictive given the allure of the escapism it offers, especially for those made vulnerable by increasing stress, desperation, loss of hope, isolation, and fear.

Those who have not been within the system of poverty and desperation often do not see just how many people actively work to encourage bad decision making, with big budgets, charm, charisma, and talent. The voices of reason, trying to act as beacons to call people to take care of themselves and their future, are all too easily drowned out in the roar of a smooth and enticing operation.

I personally think this is one of the greatest contributions of the movement to build personal financial health and awareness, as so many great people find ever more effective ways of pointing out the myriad ways people try to bleed your money out of you with no real concern for your welfare. Looking out for your own well-being and not being taking in by the wide array of cons and bad deals is all too often fighting against a strong societal current - as I'm sure most of our regular contributors are all too aware!

Jail and Prison Risk

With increasing desperation often comes illegal maneuvers, often quite petty in nature. Those with substance abuse issues often start reselling drugs to others to try to cover lost income or "get ahead", with often debilitating results on long-term earning potential if they get caught (which can include cost barriers to higher education, even if they do turn their life around).

I think most people are surprised by how little and petty things can quickly cycle out of control. This can include things like not paying minor parking or traffic tickets, which can snowball from the $10-70 range into thousands of dollars (due to non-payment often escalating and adding additional penalties, triggering traffic stops for no other reason, etc.), arrest, and more.

The elderly are not exempt from this system, and many of America's elderly spend their latter years in prison. While not all are tied to financial desperation as I've outlined above, a deeper look at poverty, crime, and the elderly will be deeply disturbing. Some of these people enter the system while young, but some only later in life.

Early Homelessness

Rather than homelessness being something that only happens after people hit retirement, it often comes considerably earlier than that. If this occurs, the outcome is generally quite a bit more extreme than living off social security - some just die.

The average life expectancy of adults who are living on the street is only about 64 years of age - only 2 years into early retirement age, and before full retirement age (which could of course be increased in the next 10-20 years, even if life expectancy and health of those without savings don't improve). Most have extremely restricted access to healthcare (often being emergency only), and have no comforts of home to rest and recuperate when they become ill or injured.

There are many people dedicated to helping, yet the help is far less than the problem generally, and being able to take advantage of most of the help (scheduling where to go for food, who to talk to about other services, etc) heavily depends on the person not already suffering from conditions that limit their ability to care for themselves (mental conditions, mobility impairments, etc).

There is also a shockingly higher risk of physical assault, injury, and death, depending on where the person goes - but it is far higher in almost every case, regardless.

Never Making It To Retirement

One of the chief problems in considering only retirement savings, is it assumes that you'll only have need for the savings and good financial health once you reach approximately the age of 62 (if it is not raised before you get there, which it has been multiple times to-date). As noted above, if homelessness occurs and becomes longstanding before that, the result is generally shortened lifespan and premature death.

The other major issue of health is that preventative care - from simple dentistry to basic self-care, adequate sleep and rest, a safe place to rejuvenate - is often sacrificed in the scrambling to survive and limited budget. Those who develop chronic conditions which need regular care are more severely affected. Diabetic and injury-related limb loss, as one example, are far more likely for those without regular support resources - homeless, destitute, or otherwise.

Limited Post-Retirement Benefits

Other posters have done a great job in pointing out a number of the lesser-known governmental programs, so I won't list them again.

I only note the important proviso that this may be quite a bit less in total than you think. Social Security on average pays retired workers $1300 a month. It was designed to avoid an all-too-common occurrence of simple starvation, rampant homelessness, and abject poverty among a large number of elderly. No guarantee is made that you won't have to leave your home, move away from your friends and family if you live in an expensive part of the country, etc. Some people get a bit more, some people get quite a bit less. And the loss of family and friend networks - especially to such at-risk groups - can be incredibly damaging.

Note also that those financially desperate will be generally pushed to take retirement at the minimum age, even though benefits would be larger and more livable if they delayed their retirement. This is an additional cost of not having other sources of savings, which is not considered by many.

Working Retirement

Well, yes, many cannot retire whether they want to or not.

I cannot find statistics on this specifically, but many are indeed just unable to financially retire without considerable loss. Social Security and other government plans help avoid the most desperate scenarios, but so many aspects of aging is not covered by insurance or affordable on the limited income that aging can be a cruel and lonely process for those with no other financial means. Those with no savings are not likely to be able to afford to regularly visit children and grandchildren, give gifts on holidays, go on cruises, enjoy the best assistive care, or afford new technological devices to assist their aging (especially those too new and experimental to be covered by the insurance plans they have).

What's worse - but most people do not plan for either - is that diminished mental and physical capacity can render many people unable to navigate the system successfully. As we've seen here, many questions are from adult children trying to help their elderly parents in retirement, and include aging parents who do not understand their own access to social security, medicaid/medicare, assistive resources, or community help organizations.

What happens to those aging without children or younger friend networks to step in and help? Well, we don't really have a replacement for that. I am not aware of any research that quantifies just how many in the US don't take advantage of the resources they are fully qualified to make use of and enjoy, due to a lack of education, social issues (feeling embarrassed and afraid), or inability to organize and communicate effectively. A resource being available is not very much help for those who don't have enough supportive resources to make use of it - which is very hard to effectively plan for, yet is exceedingly common.

Limited Aging and End of Life Support

Without one's own independent resources, the natural aging and end of life process can be especially harsh. Elderly who are economically and food insecure experience far heightened incidence of depression, asthma, heart attack, and heart failure, and a host of other maladies. They are at greater risk for elder-abuse, accidental death, life-quality threatening conditions developing or worsening, and more.

Too Grim a Picture?

Scare-tactics aren't always persuasive, and they do little to improve the lives of many because the people who need to know it most generally just don't believe it. But my hope here is that the rather highly educated and sophisticated audience here will see a little more of the harsher world that their own good decisions, good fortune, culture, and position in society shields them from experiencing. There is a downside to good outcomes, which is that it can cause us to be blind to just how extremely different is the experience of others.

Not all experience such terrible outcomes - but many hundreds of thousands in the US alone - do, and sometimes worse. It is not helpful to be unrealistic about this: life is not inherently kind.

However, none of this suggests that being co-dependent or giving up your own financial well-being is necessary or advised to help others. Share your budgeting strategies, your plans for the future, your gentle concerns, and give of your time and resources as generously as you can - within your own set budgets and ensuring your own financial well-being. And most of all - do not so easily give up on your family and friends, and count them as life-long hopeless ne'er-do-wells. Let's all strive to be good, kind, honest, and offer non-judgmental support and advice to the best of our ability to the people we care about. It is ultimately their choice - restricted by their own experiences and abilities - but need not be fate. People regularly disappoint, but sometimes they surprise and delight. Take care of yourself, and give others the best chance you can, too.

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    This is profoundly grim. If 6 in 10 americans has less than $500 in savings, does that mean 60% of americans get payday advances to buy drugs to self medicate mental illness until they are jailed only to be let out to be clubbed to death in a homeless camp in their late 30s? – Phil Frost Apr 28 '17 at 5:37
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    @PhilFrost It is certainly a possibility for those 60%, but there are also many people who currently have jobs and still have less than $500 in savings because they expand their spending to match their income. It's only when these people experience an accident or unexpected loss of ability to work (as BrianHall said iirc) that they are likely to fall into this cycle. – daboross Apr 28 '17 at 6:08
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    @DaboRoss Having known many people who have lived with no appreciable savings for years, I can say anecdotally they do indeed fall on hard times. And I can look at studies on homeless populations and say even in the worst cities, the homeless rate is, much, much less than 6 in 10. To fall into the desperation and early death described here is certainly not the most common outcome. The subtext to my statement is this answer hasn't actually answered the question: rather it's a diatribe on social issues, with no data besides the 6 in 10 statement. – Phil Frost Apr 28 '17 at 14:27
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    @PhilFrost I tried to enumerate a variety of outcomes that are collectively common in the US, not indicate an additive fate for the majority of Americans. For instance, past the 6 in 10 number, some people get out of that and build a savings and start preparing for retirement; some people stay in that position their whole life, hitting hard times but managing to scratch their way back to break-even; and some progress into the desperate outcomes. As talked about further by the link, some go into debt (temporary or permanent), and many borrow from family and friends. – BrianH Apr 28 '17 at 16:11
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    @PhilFrost In short, my goal is not to say "hey, everyone in American is universally doomed - it's a Mad Mad-esque hell out here, you are doomed for sure!" But as I tried to pepper throughout with links as support, even the harshest outcomes are not freakish, but regular, real occurrences. Each enumerated item is a very real risk, for real human beings just like you and me. Many people think it can't happen to them, because they can't conceive of how "normal people" can fall so far. I hope to have shown how things can snowball for otherwise healthy people, and make clear risk, not fate. – BrianH Apr 28 '17 at 16:15
21

According to both Huffington Post and Investopedia:

  1. You’ll need to live off your Social Security benefits.
  2. You might have to get a roommate.
  3. You’ll have to alter your lifestyle and spending.
  4. You might have to continue working.
  5. You’ll need to consider downsizing.
  6. You could end up homeless.

Trying to retire without any savings in the bank can be difficult, and that difficulty is compounded by other factors senior citizens need to keep in mind as they age, like health issues and mobility. If saving money is not possible for you, retirement doesn’t have to pass you by. There are plenty of government-assisted and nonprofit programs that can help you, such as the Commodity Supplemental Food Program, Medicare, senior housing help from Housing and Urban Development and other resources.

Therefore, to answer your questions:

Is this pretty much the destiny of everyone who cannot save for retirement?

Yes, if you do not have help from family (or friends) then you have a chance of ending up homeless and/or on government assistance.

Do most people really never retire?

There are people who really will never retire. There are stories in the news about Walmart greeters or McDonald's cashiers who are in their 80s and 90s working because they need to support themselves. However, that's not the case for everyone. There's a greeter at my local Costco who is in her 80s and she works because she loves it (her career was in consulting and she doesn't have a lack of retirement money. She just really likes talking to people.).

What really happens?

I can't answer what really happens because I have never experienced it and don't know people that do. Therefore I have to go off of what the two articles have said.

21

This is a good question and you seemed troubled by this and this person's choices in life. And that is the rub, they are choices. They know how to make them, they know the consequences, and they know how to work around them. Its a skill you probably don't have (and don't want to have).

In the end they will survive. If you go to a fast food store in a popular retirement location you will see plenty of elderly people working. They might live in low income housing, receive some financial assistance, and utilize other charities such a food banks. They might depend on family and friends. There is also the ugly, it is not a fairy tale that some supplement their diets with pet food.

There is of course social security. The amount is very low for most workers, but the amount is almost inconsequential. They would spend it all anyway and still be short despite the predictability of the income and a time frame with predictable expenses. Budgeting is a skill.

So I have a friend that deals with this himself, and is helping an elder relation. He and his wife provide some help, but when it started there was a endless stream of requests. His policy now is: No more help unless he works out a budget with the person requesting help.

I've used his ideas myself, and by using this it becomes clear on who is in actual need and who is just looking for the next handout. You can feel good about yourself for helping an actual needy person or guiltless say no.

  • 8
    Your answer is horrifying. – user26011 Apr 26 '17 at 18:16
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    I'm at the "tough love" phase myself, which is frustrating because this person (~40yo) still has enough time to start saving at least something. – Rocky Apr 26 '17 at 18:20
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    @NajibIdrissi I'd love to hear why you think so. To give a concrete example an acquaintance approached my wife for help. They were "going to lose their rental house", but my wife took time out of her busy schedule to come up with a budget and plan for them. In three months they could be comfortable, and in two years be in pretty good shape. My wife did not give them any money. Do you know what they did? They went on a week long beach vacation. They were just looking for $$$ from us so their vacation would have been a bit nicer. – Pete B. Apr 26 '17 at 18:48
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    @PeteB. I find the whole mindset appalling. – user26011 Apr 27 '17 at 7:43
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    Comments are not for extended discussion; this conversation has been moved to chat. – Ganesh Sittampalam May 3 '17 at 13:05
13

There are a host of programs in the US to help low/no-income seniors:

  • Healthcare through Medicare and/or Medicaid
  • Some income from Supplemental Security Income / Social Security
  • Money for food through SNAP (food stamps)
  • Housing subsidy via HUD Section 8.

Many states discount property taxes for the elderly as well. Not a dream retirement, but plenty of people are provided for without having prepared for retirement whether due to poor decisions or unfortunate circumstances.

  • 2
    You get SS and Medicare if you or your spouse worked and paid tax (at least 10 years for full benefits) regardless of economic status; you get SSI and Medicaid, and most other 'transfers', only if you have low income and practically no assets (usually not counting a house). – dave_thompson_085 Apr 26 '17 at 19:06
  • @dave_thompson_085 True, the programs aren't all designed only to help low/no-income seniors, but they can all potentially help a low/no-income senior. – Hart CO Apr 26 '17 at 19:08
  • I never even knew about SSI. – Rocky Apr 26 '17 at 20:18
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    Most of these exist here in Germany as well, obviously under different names, different schemes, different rules, but they do exist. I am pretty certain that this is true for more or less all modern societies, they all have programs like this. In "Western" nations, they may be based on secular beliefs of social responsibility or Christian values, in the Middle East it could be based on Muslim values of charity, and so on. Dying of poverty, especially if you actually did work at least for a part of your life is not common. Living miserably, though, that's another story … – Jörg W Mittag Apr 26 '17 at 20:39
5

Social security was created with just such people in mind. It's a meager living, but it is an income stream that can be supplemented by Walmart greeter income. It probably isn't so dire that it leads to homelessness, but it might mean not having some of the other comforts that we take for granted.

protected by Nathan L May 2 '17 at 15:43

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