Retirement Savings Shortfall Looms as 45% of Retirees Keep Working

Forty-five percent of retired Americans still work in paid jobs, and 69 percent of adults 50 and older worry they have not saved enough to retire comfortably, a Western & Southern Financial Group survey shows.

The findings upend the traditional retirement model, with 33 percent of retirees who returned to work saying they did so out of financial necessity rather than choice, according to the survey of adults 50 and older.

Among retirees, 39 percent wish they had started saving earlier and another 39 percent regret how inconsistently they saved. Respondents said $500,000 in savings would make them feel financially secure in retirement, while Fidelity recommends setting aside 15 percent of pre-tax income annually through a 401(k) or individual retirement account.

The urgency is rising because Social Security's trust funds are projected to run out of surplus in 2034 unless Congress acts, at which point only 83 percent of benefits would be payable, the Social Security Administration reported. Benefits typically replace about 40 percent of pre-retirement income, leaving savings, pensions and other income to cover the rest.

Working Through Retirement Becomes the Norm

Retirement no longer marks a clean break from the workforce. Beyond the 45 percent already working, another 19 percent of retirees said they are open to returning to work, the survey found. Among those who have returned or would consider it, 62 percent framed it as a personal choice while 33 percent called it a financial necessity.

Earned income changes the math of retirement withdrawals. Taking distributions from a traditional 401(k) or IRA while still working, which are generally taxed as ordinary income, can push a retiree into a higher tax bracket, Fidelity noted. A paycheck also reduces how much retirees need to pull from savings to cover expenses, since investments typically fill the gap between spending and other income sources.

For younger workers, the pattern is a warning. Gen Z and millennials who assume decades of saving lie ahead risk repeating the mistakes of older cohorts, where 39 percent of retirees said they started too late and another 39 percent saved inconsistently. Paying down debt first, then directing 15 percent of pre-tax income into a 401(k) or IRA, is the benchmark Fidelity recommends to stay on track.

Social Security's Shrinking Safety Net

Confidence in Social Security is eroding. Fifty-five percent of respondents said uncertainty about the program influenced how they think about retirement, according to the survey.

The Social Security Administration's latest projections show the trust funds' surplus running out in 2034 absent Congressional action, at which point only 83 percent of benefits would be payable. Because benefits replace roughly 40 percent of pre-retirement income on average, the shortfall would widen the gap retirees must close with personal savings, pensions and other income.

Inflation compounds the problem. Seventy-six percent of adults 50 and older cited rising costs as a major concern, and 57 percent said they are not confident their savings will last the rest of their lives. For those still working, the survey suggests reviewing contribution rates to employer-sponsored plans and increasing them where possible to close the gap between what is saved and what retirement will require.

The $500,000 figure that most respondents said would bring financial security is not out of reach, but it requires starting early and saving consistently. Cutting daily spending, taking on a side job or selling unused assets are among the ways workers can redirect cash into retirement accounts, the survey suggested.

The figures cited reflect the latest available projections and survey data; readers should verify current Social Security estimates and tax rules against official announcements, as these change over time.

This article is for informational purposes only and does not constitute investment advice.