Around half of American households have no retirement accounts at all. No 401(k)s, no IRAs, nothing. You might think that’s because they’re all expecting pension income 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.
Find out how much you need to save for retirement.
Unmet Savings Goals
It isn’t just retirement accounts that Americans lack. Looking at overall net worth tells a similar story. According to the Census Bureau, the (median) average net worth excluding home equity for an American 35-44 years old is $14,226. In the 55-64 age range, average net worth is $45,447. The picture of Americans’ net worth looks better if you include home equity, but not every American will be able to tap into that equity to pay for retirement. The financial crisis showed how borrowing against your home equity can go wrong.
Social Security, with an average monthly benefit for retired workers of $1,354.04 as of October 2016, was never meant to be the sole source of retirement income. For many Americans, though, Social Security is the only money they have coming in. Add to that the rising levels of indebtedness among older Americans and you have a situation that’s a far cry from the retirement dream of travel and leisure.
America’s Retirement Savings Gap
People with higher incomes are more likely to have retirement savings – and their average retirement savings are higher too. That shouldn’t come as a huge surprise, but it’s one of the most notable features of the U.S. retirement savings landscape.
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 to not necessarily count on working later as a substitute for retirement planning.
Yes, America has a retirement savings gap to match our income gap. The richest among us have the biggest retirement accounts, while many of those with the lowest incomes have no savings and plenty of debt. 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.
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 (like a financial advisor) can help you set and meet your specific retirement goal.
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 generally pretty bleak. Average just isn’t good enough. Even above-average savings might not be enough to let you maintain your lifestyle in retirement.
Many Americans now say they expect to work longer and retire later. That’s one way of getting around a retirement savings gap, but it’s not a sure thing. You may say you want, hope, intend or plan to work into your 70’s, but what if your boss has other ideas? Banking on working later instead of saving for retirement is a risky move. That’s why it’s best to save as much as you can starting as early as you can.
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