Any mental-health professional will tell you that comparing yourself to others isn’t good for peace of mind. But when it comes to retirement savings, getting an idea of what others do can be good information to have. It’s hard to know how much you’ll need, exactly, for your own post-career days, but finding out how others are planning (or not) can offer a benchmark for setting goals and milestones.
The good news is that Americans have been making an effort to save more. According to Fidelity, the investment firm/brokerage that administers more than $5 trillion in assets, the average 401(k) plan balance reached a new all-time high of $92,500 in 2016 – up $4300 from a year ago.
What should you aim for, savings-wise? Fidelity has some pretty concrete ideas. By the time you’re 30, the company calculates you should have saved half of your annual salary. If you make $50,000 on your 30th birthday, you should have $25,000 banked for retirement. By age 40, you should have twice your annual salary. By age 50, four times your salary; by age 60, six times, and by age 67, eight times. If you reach 67 years old and are making $75,000 per year, you should have $600,000 saved.
There’s also the tried-and-true, what some might call old-school, 80% rule. Save as much as you would need to get paid 80% of your salary for about 20 years. That would require about $1.2 million for that same person making $75,000, if you don’t factor inflation into the mix. That number goes up to between $1.5 million and $1.8 million depending on how you do try to factor it in. However you choose to calculate things, there’s one thing everybody agrees on: It’s A LOT of money.
Not Measuring Up
And, most people are behind.
A 2015 Government Accountability Office study found that show that 29% of Americans 55 and older don’t have any retirement nest egg or even a traditional pension plan. Those who do have retirement funds don't have enough money: 55 to 64-year-olds have an average of $104,000 and those 65 to 74 have $148,000 in savings. If that money were turned into a lifetime annuity, it would only amount to $310 and $649 respectively per month.
Any and every financial planning expert would agree that it’s not nearly enough.
A 2015 TransAmerica survey analyzed savings amounts based on age. It found that savers in their 20s had a median estimated account balance of $16,000. Once they reached their 30s, that figure reached $45,000, and by the time they blew 50 candles out on their birthday cake, they had a nest egg valued at $117,000. For sixtysomethings and older – an age that puts you close to or in retirement – the estimate was $172,000. That's well below even the most conservative goals.
Part of the problem, according to TransAmerica, might be lack of financial understanding and education. Two-thirds of workers believe they don’t know as much about retirement as they should. In fact, 30% of workers say they don’t know anything about asset allocation and around 20% of workers admit to not knowing how their retirement money is invested – and that’s true of all workers, from the twentysomethings to the sixtysomethings. For that matter, only 29% of Americans aged 60 and over say they know "a great deal" about Social Security, even though nearly 90% expect it to be a significant source of income when they stop working.
The Bottom Line
Sad but true: The average American doesn’t have nearly enough savings to sustain him or her through retirement.
How do you avoid that fate? First, become a student of the retirement-savings process. Learn how Social Security and Medicare work, and what you might expect from them. Then, figure out a savings goal and develop a plan to get to the sum you need, by the time you need it. For help, click here to find the Investopedia retirement planning tutorial that best fits your age or stage of life.
And start as early as possible. Retirement may seem a long way away. But when it comes to saving for it, the days dwindle down to a precious few – because any Delay In Retirement Savings Costs More In The Long Run.