Around half of American households have no retirement savings at all. No 401(k)s, no IRAs, nothing. Perhaps, you think, they’re expecting pension income to support them in retirement? In fact, according to the Government Accountability Office (GAO), around 29% of households age 55 and older have neither retirement savings nor a pension. It doesn’t paint a pretty picture.
Knowing how your own retirement savings compare to the rest of the country can be helpful. It can put your mind at ease to know that you’re ahead of curve – or let you know that you need to pick up the pace.
What Is Average?
According to the National Institute on Retirement Security, almost 40 million households have no retirement savings at all. The Employee Benefit Research Institute estimates that Americans have a retirement savings deficit at $4.3 trillion. That means all U.S. households (with a head of household between the ages of 25 and 64) have $4.3 trillion fewer in savings than they should have for retirement.
Research by the Federal Reserve found that the median retirement account balance in the U.S. – looking only at those who actually have retirement accounts – was just $60,000 in 2016 (the most recent survey available). The conditional mean balance was $228,900. Those numbers might not sound bad, but consider that the medical costs alone for a couple over the course of retirement is estimated to be about $200,000.
An October 2017 study by the Center for Retirement Research calculated median retirement account balances by age from Federal Reserve survey data. Their calculations are represented in the following table:
|Median Retirement Account Balance by Age|
|Age Group||401(k)/IRA Balance|
Unmet Savings Goals
It isn’t just retirement accounts that Americans lack. Looking at overall net worth tells a similar story, although these figures have been consistently rising since the Great Recession. In the same Federal Reserve report, the median household net worth for a head of household age 35-44 years old is $59,800. For a head of household age 45 to 54 years old, that figure is $124,200. In the 55-64 age range, average net worth is $187,300. Including all age groups median net worth rose 16 percent from the 2013 survey.
For many Americans, Social Security benefits are the only source of income during their retirement. Social Security was never meant to be the sole source of retirement income, though. Retired workers average a monthly Social Security benefit of $1,354.04 as of October 2016 – roughly the equivalent of a minimum-wage job. Add the rising debt levels among older Americans and you have a situation that’s a far cry from most people’s’ retirement dream of travel and leisure.
America’s Retirement Savings Gap
America has a retirement savings gap to match our income gap. People with higher incomes are more likely to have retirement savings and their average retirement savings are higher, too. Meanwhile people with the lowest incomes have no savings and plenty of debt. That shouldn’t come as a huge surprise, but it’s one of the most notable features of the U.S. retirement savings landscape.
It may be counter-intuitive but those near the top can still have big retirement savings gaps. Think of a high-earning family with an expensive mortgage and kids in private school. They may not save much for retirement, and their high standard of living means there would be a big gap between the income they’re used to and the retirement income they’ve saved.
Think lower-income folks can simply work longer and retire later to make up for their lack of savings? Not so fast. Americans with lower incomes may be the ones least able to work into their late 60’s and 70’s, either because their work is too physically demanding or their employers won’t want to keep them on. It’s a good idea even for white-collar workers not to count on working later as a substitute for retirement planning.
Where You Stand
Experts generally think of retirement savings as an end goal with a series of mileposts along the way. Some say that you should have saved the equivalent of one year’s salary by the time you hit 30, but saving more certainly won’t hurt.
By the time you retire, it can be a good idea to have between 9 and 11 times your salary in retirement savings. These aren’t hard-and-fast rules, and experts disagree about how much to save by 30, 35, 40, 45, 50, 55, 60, 65 and beyond.
Conventional wisdom has been that saving between 10 and 15 percent of your salary each year will get you on your way to a comfortable retirement so long as you choose a low-fee investment vehicle that consistently earns inflation-beating returns. Talking to an expert can help you set and execute a retirement plan.
So why don’t Americans’ average retirement savings match up to what experts say we should have? There are two very good reasons. One is that our brains have a hard time giving up present reward for future reward, especially when that future is decades away. Saving is tough. We can’t picture ourselves choosing between food and prescription drugs in our old age but we can picture what we’d do with our paychecks in the here and now.
The other reason that Americans fall short when it comes to retirement savings is that many of us don’t make enough to both save for retirement and have the life we want. Juggling necessary expenses, student loan payments, childcare and all the rest can leave us with nothing left for an IRA.
When it comes to average retirement savings statistics in America, the picture is fairly bleak. That means that keeping up with the Joneses in this respect just isn’t enough. Even above-average savings and a healthy Social Security benefit might not be enough to let you maintain your lifestyle in retirement.
Many Americans say they expect to work longer and retire later to get around the retirement savings gap. That’s one strategy but it isn’t a sure thing that you’ll be able to keep working into your 70s. The safest thing to do is save as much as you can throughout your career and to start saving as early as you can.
Tips to Help You Save for Retirement
- Social Security benefits aren’t enough to replace having your own retirement savings. However, they can certainly help with your living expenses in retirement. Try our Social Security calculator to see how much of a benefit you can expect.
- While you’re at it, check out our retirement calculator to see if your savings are on pace; and try our cost of living calculator to get a better idea of your income needs.
- You may want to consider working with a financial advisor to ensure you’re ready to retire by the time you want to. The SmartAsset financial advisor matching tool can help you find a qualified fiduciary advisor right in your area. Just answer some questions about your financial situation and needs, and the tool will match you with up to three local financial advisors.
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