If your retirement savings aren’t what you’d hoped–or you don’t have any at all–you’re not alone. By many different measures, Americans are lacking when it comes to retirement planning. 

A recent analysis ranked Alabama the most affordable state to live comfortably in retirement. But the news isn’t all good. The average Alabaman will require $894,461 to live out his or her golden years in relative comfort. That’s below the national average of about $1.1 million, but that’s only partially attributable to Alabama’s lower cost of living. It’s also partly because Alabama has one of the lowest life expectancies in the United States, meaning the average retiree will have fewer years of post-earning life to fund. 

Preparation for retirement in Alabama and around the country has been analyzed from many perspectives, and most researchers agree that the news isn’t good. 

The State of US Retirement Savings

According to the most recent Report on the Well-Being of U.S. Households from the Federal Reserve, about 25% of pre-retirement American adults have no retirement savings at all. While it’s somewhat encouraging that 75% have some sort of retirement savings, that leaves tens of millions of Americans with none. And, even those who have some savings for retirement are often underprepared. 

Just 37% of respondents to the same survey said they felt their retirement savings were on track. 

One key variable is income level. A report from the U.S. Government Accountability Office (GAO) broke out retirement savings based on income quintiles. More than 50% of those in the top-earning quintile had retirement account balances in excess of $500,000 and nearly 86% had some retirement savings. But, at the other end of the spectrum, the picture was bleak. 88.9% of those in the lowest-earning quintile had no retirement savings at all. Fewer than 1% had retirement account balances of more than $50,000, and none had a balance in excess of $150,000.

In the third quintile–the center for U.S. earners–44.5% had no retirement savings and another 24.8% had $50,000 or less. 

In the abstract, $50,000 may sound like a fair amount of money. But, it’s just about enough to live at poverty level for four years–neither long enough nor at the standard of living most people would like to expect when their working years come to an end.

The Pandemic May be Increasing Underpreparation for Retirement

Recently, we warned against gutting retirement accounts. However, the pandemic appears to be pushing many Americans to do just that. 27% of respondents to one recent survey said they had decreased their retirement account contributions or stopped them altogether. Another 21% said they hadn’t yet started saving for retirement.

The CARES Act made it easier and less expensive to withdraw funds from retirement accounts, temporarily eliminating the 10% early withdrawal penalty and increasing the amount workers can borrow from their retirement accounts. While that’s good news for those struggling during the pandemic, the long-term impact isn’t so bright. 9% of respondents to the survey said they’d already taken money from retirement accounts to help weather the pandemic.

Can You Live on Social Security? 

A significant percentage of retired Americans are currently living solely or almost entirely on Social Security income. But we don’t know exactly how many. One recent study said about 40% of retirees depended entirely on Social Security. But, a few years ago, the Social Security Administration put that number at just under 20%. And the Federal Reserve report referenced above found that about 80% of retirees reported one or more sources of private income. 

In 2020, the average Social Security benefit in Alabama is $17,987.76, or $1,498.98/month. That’s below the projected cost of living for a single person in a one-bedroom apartment in Birmingham. And, of course, the future of Social Security is uncertain. You’ve probably heard that if nothing changes, the Social Security fund will be depleted in 2023. While that doesn’t mean Social Security benefits will come crashing to an end, it does mean benefit levels may drop, and it’s not clear how that would be administered.

As an aside, in our Social Security disability practice we find a lot of people are concerned that filing a disability claim may have a negative effect on their ability to file for retirement when the time comes.

In fact, work-based disability benefits, commonly known as Disability Insurance Benefits, do not affect your Social Security retirement eligibility at all.  In fact, you may choose which benefit to keep.  In other words, if your disability monthly monetary benefit is greater than your retirement figure, then you can keep drawing the disability benefit permanently.

On the other hand, if you are drawing needs-based disability benefits, commonly known as Supplemental Security Income, you must take the retirement benefit when the time comes, regardless if it is less than your disability monthly monetary benefit.  But again, your eligibility for the retirement benefit is not affected by filing for this type of disability benefit.

There are several other variables to consider, but that is the gist of it.

If You Haven’t Started Planning for Retirement, Start Now

It’s a tough time to start figuring out how to set aside money. But, for most people, there’s never a perfect time. And, the longer you wait, the smaller your account will be. That’s not just because you’ll make fewer contributions, but because compound interest makes a huge difference in the value of your retirement account. The earlier you start depositing funds, the more those funds will grow. 

For many people, debt is a serious obstacle to retirement savings. We’ve already talked about the hazards of taking money out of retirement accounts to pay down debt. But what’s rarely mentioned is that the impact is exactly the same when that money never makes it to a retirement account in the first place. If your life has become a cycle of minimum payments, late fees, and an increasingly distant future plan to save for retirement, it may be time to explore your options. 

The experienced debt resolution attorneys at Bond & Botes offer free consultations to people struggling with financial stress. You can schedule yours right now by calling 877-581-3396 or filling out the contact form on this page.

James Ezzell
Written by James Ezzell

James Ezzell is an attorney at the Bond & Botes Law Offices in Huntsville, Alabama. He holds a Bachelor of Science from the University of Alabama, and a Juris Doctorate from the Mississippi College School of Law. James prides himself in working and winning SSA Disability cases for people truly in need of his help. Read his full bio here.

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