Americans' financesAccording to recent research by Fidelity Investments, generations of Americans are facing threadbare finances in retirement. Judging by what they expect to receive after the stop working, Fidelity reports that the average person will see their income drop by about 28%. And judging by what they expect to spend, the gap between income and outgo will be major.

To illustrate just how bad it can become, that same research claims that 38% of current retirees don't generate enough income to cover their expenses and are thus already living on borrowed time.

It gets worse, because the deeper into retirement you get, the tougher it is to go back to work and earn a decent living, as your skills are viewed as less relevant. And of course, at some point, if you spend more than you take in, you run out of assets to sell and are forced to take a substantial cut in your lifestyle.

How Big a Gap Is it?

While that spend-down could be rendered moot if it takes place over decades, the reality is that most people's retirement spending is expected to far outpace their incomes by enough to quickly evaporate their savings.

The chart below shows just how big the expected monthly gap is on average, for each generation:

Monthly Incomes and Gaps
Source: Fidelity Investments.

This multigenerational problem is a gap of about $1,650 to $2,100 per household, per month. That's not chump change, especially when looked at as a portion of total expenses.

Of course, as my Motley Fool colleague Dan Caplinger points out in his counterpoint article, typically, retirees have considerably more flexibility to cut back their spending than those working to support a family and mortgage do.

Still, that flexibility only goes so far. If it were really that easy for retirees to cut back, why would nearly 40% of current retirees be unable to cover their costs already?

What Can You Do About It?

Those big, red deficit bars aren't going anywhere, and unless you can live on less than you're taking in, your choices become rather stark. You can:

  • Hope you pass away before the money runs out.
  • Hope you can keep borrowing yourself deeper in debt you'll never have to pay back.
  • Hope that when you do run out of money, family members or charities will take care of you.
  • Hope that the when your lifestyle gets forcibly downgraded, you'll be too old to be all that active anyway.

When it comes to retirement funding, "hope" is not a successful strategy.

Gen X and Gen Y, Use Your Years Wisely

The good news, though, is that, especially for Gen Xers, and Gen Yers, there's still enough time to cover that gap and save enough for a comfortable retirement. For boomers who haven't yet prepared, however, it may be getting too late to cover the gap through savings alone.

The chart below shows what typical members of each generation need to save each month to cover that gap from their savings alone, with the "Savings Needed" number based on the 4% rule for retirement withdrawals:

Savings Needed
Monthly Savings Needed, Assuming
4% Returns
Monthly Savings Needed, Assuming
8% Returns
Baby boomers
10 years
Gen Xers
20 years
Gen Yers
30 years
Source: Author calculations, based on the Fidelity study.

Even for boomers, though, there are still some options besides starving in old age. Generation-specific opportunities for those who are at risk for those gaps appear below:


  • Work longer.
  • Kick your kids out of the house, or at least charge them for rent, utilities, and food.
  • Downsize what you can while it's still your choice what goes.
Gen Xers:
  • Make sure your retirement is funded before your kids' college educations.
  • Seek higher returns while you're still young enough to recover from typical volatility.
  • Maximize matching money and deductible contributions to eke every bit of input you can.

Gen Yers:
  • Pay off your debts, then immediately turn that cash into investment contributions.
  • Increase your contributions as much as you can every time you get a raise.
  • Consider saving even more aggressively, given the Social Security trust fund's pending collapse.

Regardless of your age and how many more years you plan to work, the sooner you start, the more time you have on your side. The more time you have, the easier the adjustments and the less cash you have to put away to reach your goal. There's no better time than right now to get yourself on track to close that retirement gap.

Motley Fool contributor Chuck Saletta welcomes your comments. Click here for a free video research report on Social Security, Medicare and your retirement from The Motley Fool.

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so some corrupt company or individual can run off with all of that money that you've saved for retirement.

April 26 2013 at 7:14 PM Report abuse rate up rate down Reply

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April 25 2013 at 10:15 PM Report abuse rate up rate down Reply

I have a Social Security question that has been bothering me for some time. My husband died on July 31 and I had to return his entire month's Social Security payment,,,,,,,,,,,WHY????????????????? Was there someone in Washington who needed it more than I did? We were both in our 70's and he was injured horribly on his job and could not work for years so our income was cut drasticaly.......Considering the enormous pensions our taxes pay to our all should be aware of these little quirks in our systems.

May 24 2012 at 4:23 PM Report abuse rate up rate down Reply
1 reply to reeltress's comment

I'm sorry for your loss. You don't say how old you are, but you need to go to the SS office and claim widows benefits if you are eligible. It is my understanding that a widow will get her husband's benefit, but now both benefits. They always come in and take back the last check even if you die on the last day of the month. They are really quick too. It sounds like your husband may have been getting disability payments. I don't know the rules for widows regarding that benefit. Women, you need to read the booklets carefully and plan, plan, plan for the what if.

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b.f.k. sr

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Wayne Bradshaw

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If the unconscionably greedy including the banksters and Wall Street wise guys don't throw the global economy into another abyss, maybe more people will have a better chance to retire comfortably. Unfortunately, unbridled greed and the fact that our government is the best one money can buy is the major cause of most (if not all) of our economic problems. It's not just limited to whatever person is sitting in the White House. If you numb nuts out there think things will improve with a Mitt Romney as Potus, here is a quarter. Call your proctologist and have him retrieve your head from your arse. Our two party system in this country is broken and needs to be completely overhauled so that it represents the interests of the over burdened tax paying middle class. This needs to happen soon before this country goes the way of the Roman Empire and the Dodo bird.

April 30 2012 at 11:04 AM Report abuse rate up rate down Reply