Riddle me this: How much does the average American have saved for retirement?
That’s a tricky question. And the complicated answer is disconcerting, to say the least.
Americans have socked away an average $84,821 to fund their retirement, according to a survey conducted for Northwestern Mutual. But about one-third of those surveyed for that 2018 Planning & Progress Study reported that they have less than $5,000 in retirement savings. Another quarter of the respondents said they have $200,000 or more squirreled away. That’s good news, but still a long way from the $500,000-“happy-retiree” mark, according to the survey I conducted of retirees.
You’ve probably seen a lot of media reports about “the retirement crisis.” Many economists dismiss this idea, arguing that today’s retirees are doing just fine. But the issue isn’t really today’s retirees; it’s the group that will be retiring in the next two decades or so. Estimates indicate that about 44% of Baby Boomers and Gen Xers are at risk of running out of retirement money before they run out of retirement years.
Why are we as a country having such a hard time-saving? The answer is layered.
For openers, money is tight. And finally, it appears that working-class Americans aren’t making what they used to make. A recent study by the Federal Reserve Bank of St. Louis shows that between 1989 to 2013, there was wage growth among older families. But, in families where the head of the household is 61-years-old or younger, wages have actually been on the decline over the past two decades by about 30%. About 40% of Americans say they would be unable to come up with $400 for an emergency expense without borrowing money or selling a possession.
So, one problem is that many families are struggling just to pay the bills and aren’t always able to set aside extra cash for retirement.
Another issue is access to retirement savings vehicles. More than one-third of private sector workers don’t have access to a workplace retirement plan – a 401(k) plan or the like. That’s a serious problem because in this post-pension era Americans are on their own when it comes to funding their retirement. Employer-sponsored retirement savings plans, in which tax-deferred employee contributions are deducted from paychecks, can provide much-needed discipline to that savings process.
And yet another facet of the retirement puzzle is that, by 2035, individuals over age 65 will outnumber America’s children. If this trend continues, our old-age dependency ratio in 2020 will be 3.5 working-age adults for every person of retirement age. And, by 2060, this ratio will fall further – to about 2.5 to one.
But here’s the good news: Your retirement fate is not determined by these gloomy stats. You’re the captain of your own financial ship. It’s never too late to start, and any amount you can save puts you in the running for a stable retirement. In fact, I just wrote an article about how to start saving for retirement when you’re in your 50s. And, you shouldn’t let the headlines that tout that a million dollars (or two) is a prerequisite for a good retirement. It’s not. It depends on your personal lifestyle and spending needs.
No matter where you are in your savings journey, we’re always here to help. Whether you’re well down the savings road or just starting out, my team is ready and able to help you chart your path towards a happy retirement.