Escape the Coming Retirement Crisis

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The latest retirement study is out, and it doesn't paint a pretty picture for the coming retirement crisis in America. According to statistics compiled by the Census Bureau and analyzed by the folks at, among the 50 states and Washington, D.C., there are only two places where people make enough money to enjoy a comfortable retirement: The District of Columbia and Nevada.

That's a pretty lonely green space. Photo:, using BLS statistics.

Does that mean life for seniors is going to hell in a hand basket? Not quite. While the analysis was solid, it made a few assumptions that painted a skewed picture of what is needed for a comfortable retirement. Once those assumptions are adjusted, escaping the coming retirement crisis doesn't seem like such a Herculean labor.

"Few will be able to get by on less"
That's what had to say -- and that simple phrase invalidates's entire premise.

But let's back up and look at the bigger assumptions at play. According to the study's authors (emphasis mine):

Income statistics from the Census Bureau's American Community Survey [were used] to compare how those of us age 65 and over are faring against pre-retirement households led by those 45 to 64. We chose that comparison because a rough rule of thumb is that you'll need at least 70% of your pre-retirement income once you stop working Some people will need more, of course, but few will be able to get by on less.

It's true that many experts say you need to replace about 70% of your employment income once you enter retirement. Others say you need 80%. These are well-known rules of thumb.

So what's the big deal?
The idea that you "can't get by" on less than 70% of your pre-retirement income is simply false. The facts don't support it.

That's because we humans are awful at predicting our ability to adapt. Perhaps you've heard of the study that found lottery winners were no happier three months after winning than quadriplegics were three months after suffering their traumatic accident.

That's an extreme example, but it demonstrates an important principle: Most people only need enough money to buy the bare necessities. After that, happiness usually comes from far less tangible sources -- a sense of purpose or belonging or time with family and friends, for example.

Recent findings from T. Rowe Price bear this out. The company found that the median retiree was replacing about 67% of his or her pre-retirement income. Given that, you'd expect that over half of retirees were unhappy. After all, said they likely couldn't get by on that income.

But that's not what was found. A full 89% of retirees said they were "somewhat satisfied" or "very satisfied" with retirement. How could that be? In a word: adaptation. Here's what I mean.

In the interest of offering a different view based on this realization, I've redrawn the map from above, only this time with a 60% income-replacement threshold.

Why do I pick this threshold? said this is what the average retiree has compared to pre-retirement workers. However, never asked whether retirees were satisfied with this amount; it just assumed they weren't because of the 70% threshold.

T. Rowe Price, on the other hand, did a better job getting relevant data. The survey compared an individual's pre-retirement income to post-retirement income. instead compared the average retired person's income with the average income of a 45- to 65-year-old in each state. If wealthier residents moved out of state, for example, the results for would be severely skewed.

In the end, T. Rowe found that the median retiree is definitely satisfied with retirement. However, has the greater volume of results, because it used Census Bureau information. Using this data set, with T. Rowe's conclusions about satisfaction, I think 60% income replacement is a worthy threshold.

There are many ways to play with the data, but taking this approach, the picture of retirement in America changes dramatically:

Green indicates more than 60% income replacement. Yellow indicates replacement between 50% and 60%. Red indicates less than 50% replacement. Source: U.S. Census,, and  

Does this mean you shouldn't save for retirement? Not at all! Our collective inability to save for retirement is a major financial flaw in how we live our lives as Americans.

Instead, given that we clearly don't need as much as we think we do to be happy, I encourage everyone to find their "enough" level and start living at it today. Not only will this declutter your life, but it will inevitably lead to more reasonable spending and higher savings rates. That will make it even easier to escape what many believe will be a retirement crisis in the decades to come.

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