Before losing his job at age 61, Jim and his wife, Helen, had a combined annual income of approximately USD 300,000. When considering retirement, Jim calculated that if they lived for another 30 years, their accumulated USD 1.5 million, when averaged, would only provide a little over USD 50,000 annually.

Applying the 4% rule of thumb—which suggests withdrawing 4% of savings in the first year of retirement and adjusting for inflation in subsequent years to make the money last for 30 years—they would have about USD 60,000 to spend. This represents an 80% reduction from their previous income. This figure concerned Jim, who worried about meeting living expenses as housing, insurance, and medical costs continue to rise.

Jim is not alone in his concerns. Another couple, aged 52, wrote to a MarketWatch advice column expressing similar anxieties. Despite possessing substantial assets, including USD 4.4 million in investments, USD 250,000 in cash, real estate valued at USD 1.1 million, and a business worth USD 25 million, the husband confessed he "feared running out of money."

Their investment portfolio alone could generate approximately USD 150,000 to USD 176,000 per year without touching the principal. However, the looming threat of medical expenses before qualifying for Medicare and the risk of inflation prevent them from stopping work.

Photo illustration: Freepik

The changing retirement landscape

The anxieties experienced by middle-class Americans, such as Jim and his wife or the other couple, reflect a new reality of 21st-century retirement. According to the US Center for Retirement Research, the average retirement age is now three years later than in the 1990s. In 2024, nearly 20% of Americans over age 65 are still working, double the figure from 30 years ago.

The primary reason for this shift is increased life expectancy. US women aged 65 are now expected to live an average of 20 more years, while men are expected to live 17.5 more years. The biggest risk to financial planning is not losing money, but outliving one's savings.

For Jim and Helen, USD 1.5 million must support them for nearly 30 years if they live to age 90. The risk of economic recession or higher-than-expected inflation could rapidly erode their purchasing power. Even with Medicare at age 65, out-of-pocket medical expenses remain a significant burden.

However, compared to the general population, they are still in an enviable position. According to the US Federal Reserve (Fed), the median retirement savings for the 55-64 age group is only about USD 185,000. Experts often recommend that by age 60, individuals should have savings equivalent to 8 to 10 times their annual income. For Jim, the ideal amount would be USD 2.4 million to USD 3 million, meaning he is still below the recommended benchmark despite having a million dollars in hand.

Expert advice

David Rae, a financial advisor at Trilogy Financial, suggests that the problem for wealthy but anxious couples often stems from psychological factors and a lack of detailed planning.

To address these concerns, Rae proposes three steps: First, create a detailed retirement budget, including provisions for medical costs and travel, to avoid "hidden expenses." Second, maintain a partial income through part-time work or consulting. For Jim, a less demanding job could reduce the pressure to withdraw from retirement funds while also maintaining social connections. Third, adopt a flexible approach. Instead of retiring completely at the same time, couples can stagger their retirement. The income of the spouse still working can act as a financial cushion during the transition period.

By Ngoc Ngan (Source: Yahoo Finance)