Retirement is supposed to be a time of financial stability, yet many retirees struggle to make ends meet. The 2024 Spending in Retirement Study by EBRI found that 31% of retirees spend more than they can afford, and 68% carry credit card debt. These statistics highlight a growing issue: many retirees are financially unprepared for the later years of life.

Rising costs, insufficient savings, and increasing debt loads make retirement a stressful experience for millions. Understanding these financial challenges can help those nearing retirement make better planning decisions to avoid financial strain later in life.

The Rising Cost of Retirement and Its Impact on Retirees

Retirees face increasing living costs each year, putting added pressure on their ability to sustain savings throughout their retirement years. Several factors contribute to rising costs that can quickly erode their financial security:

  • Healthcare Costs: Out-of-pocket expenses for Medicare-covered services are steadily rising, placing a significant strain on retirees' budgets. Without proper planning, healthcare costs can take up a larger portion of their income than expected.
  • Housing Costs: More retirees are entering retirement with mortgage debt or struggling with rising property taxes, both of which can be substantial ongoing financial burdens. Housing costs, including rent and property maintenance, remain a top concern for many.
  • Inflation: Everyday expenses such as groceries, utilities, and transportation are becoming more expensive, reducing retirees' purchasing power. With inflation outpacing income growth, many retirees find it increasingly difficult to maintain their desired lifestyle.
  • Long-Term Care: Unexpected long-term care expenses, especially for those without adequate insurance or savings set aside, can quickly deplete retirement savings. These costs are unpredictable and can become a significant financial burden without the right strategy.

These rising costs, if not carefully managed, can drain savings faster than anticipated, leading to financial insecurity. Planning ahead is essential to ensure that retirees can maintain their financial independence and quality of life throughout their later years.

Why Many Retirees Struggle with Insufficient Savings

For decades, workers have been encouraged to save for retirement, yet many still lack enough to maintain their desired lifestyle. The challenges include:

  • Not saving enough early: Many workers wait too long to start saving, missing out on years of growth that could have helped build a larger nest egg.
  • Over-reliance on Social Security: While Social Security provides some income, it was never meant to cover all of a retiree’s expenses.
  • Low 401(k) and IRA balances: Many retirees find their savings are not enough to last, which forces them to either cut back on spending or take on debt.
  • Early withdrawals and high spending rates: Some retirees take out too much money too soon, leaving them with little or no savings as they age.
  • Lack of employer-sponsored retirement plans: Many workers do not have access to employer-matched savings, making it harder to build sufficient funds.

A lack of adequate savings forces retirees to make difficult choices, often leading to increased debt or a lower standard of living.

How Debt Burdens Retirees in Their Golden Years

As retirees enter their golden years, many find themselves burdened by debt, making it harder to enjoy the retirement they envisioned.

  • Credit card debt (68%): With high interest rates, credit card debt becomes a heavy burden. It can be tough for retirees to pay off these balances, causing increasing strain on their finances.
  • Mortgage debt: More retirees are carrying mortgage payments into retirement, leaving them with less income to cover other essentials.
  • Medical debt: Healthcare costs continue to rise, and many retirees face unexpected medical bills.
  • Personal and auto loans: Many retirees take out loans to meet basic living expenses, adding to their debt load and further limiting their financial freedom.
  • Reverse mortgages: While reverse mortgages can offer immediate relief, they carry risks. These loans can erode home equity and create long-term financial challenges.

Carrying debt into retirement reduces financial flexibility and can increase stress, making it harder for retirees to enjoy the financial freedom they worked for.

Strategies to Improve Financial Stability in Retirement

While financial challenges in retirement are significant, there are steps retirees and pre-retirees can take to build more stability.

  • Delaying retirement: Working a few more years can give you extra time to save and reduce the number of years your savings need to last.
  • Downsizing housing: Moving to a smaller, more affordable home can free up cash and lower your ongoing living costs.
  • Managing spending habits: Create a practical budget to avoid spending more than you should and running up debt.
  • Debt reduction strategies: Reducing debt before retirement makes it easier to manage your finances when you stop working.
  • Health savings accounts (HSAs) and long-term care planning: Setting funds aside specifically for medical expenses can prevent unexpected costs from derailing retirement plans.
  • Diversified retirement investments: A mix of investments helps keep your finances flexible and better protected against market changes.

Small, smart changes in how you save and spend now can make a big difference in ensuring you enjoy financial security in retirement.

The Role of Retirement Planning in Avoiding Debt

Planning for retirement is one of the best ways to avoid debt later in life. Key steps include:

  • Starting retirement savings early: Even small contributions over time can lead to significant savings by retirement age.
  • Using employer-sponsored retirement plans: Taking full advantage of 401(k) contributions and employer matching can boost savings.
  • Understanding withdrawal strategies: Managing retirement withdrawals wisely can prevent running out of money too soon.
  • Consulting financial advisors: Professional advice can help retirees make informed decisions about investments, withdrawals, and debt management.
  • Utilizing tax-advantaged savings: Using Roth IRAs and other tax-free options can maximize retirement income.

Employer-Sponsored Support for Retirees

Employers play an important role in helping workers prepare for a secure retirement. Here are some ways to offer support:

  • Increase 401(k) matching: Employers can offer better 401(k) matching to help employees save more for retirement.
  • Provide financial education: Employers can offer resources and education to help employees make smarter decisions about their savings and retirement.
  • Offer Extra Benefits: Employers can offer additional retirement benefits like financial planning or health savings accounts (HSAs) to further support employees.

By offering these resources, employers can help employees build a more secure financial future for retirement.

Taking Action for a More Secure Retirement

The growing number of retirees struggling with spending and debt highlights the need for better financial planning and support.

One of the best ways to take action today is to set up account consolidation for your employees. Book a quick demo, and we’ll share how you can get started in 30 minutes or less.