What is the size of the average retirement nest egg?
According to a Government Accountability Office (GAO) study, people between the ages of 55 and 64 with any retirement savings had a median amount of $104,000 in their nest eggs. For households with members between 65 to 74, the median value in retirement savings was $148,000. These figures are equivalent to an inflation-protected annuity of $310 and $649 per month, respectively.
Many Americans Have No Retirement Savings
These numbers are far below suggested minimums required for maintaining a comfortable lifestyle. About 29% of households with members aged 55 and over have neither retirement savings, such as 401(k) plans or individual retirement accounts (IRAs), nor a defined-benefit (DB) plan (a traditional pension). An additional 23% do have a DB plan, but no other retirement savings.
Households that do have retirement savings generally have other resources to draw on as well, such as non-retirement savings and DB plans. Social Security provides most of the income for about half of households including people 65 and older.
Start Saving As Soon As Possible
It is clear that being average when it comes to retirement savings is not a good thing. The key to having enough at retirement is to start saving as soon as possible. The difference between beginning a regular retirement savings plan in your 20s compared to your 30s can be hundreds of thousands of dollars by the time you reach retirement age.
Contributing to an IRA or an employer-sponsored 401(k) provides tax-deferred earnings and benefits from compound growth. Many professionals recommend that a 40-year-old have a nest egg twice his annual household income, increasing it to four times his annual income by age 50 and six times his current income by age 60.
To learn more, read: 6 Late-Stage Retirement Catch-Up Tactics.
Here are the median account balance split by the 3 generations*:
Generation Balance Confidence Level
Baby Boomers $147,000 66%
Generation X $69,000 62%
Millennials $31,000 68%
* According to Transamerica Center of Retirement Study, 17th Survey, Year 2016
However, medical costs per person alone is estimated to be $130,000. For baby boomers, about 39% of the income is expected to ome from 401(k)/DB, 34% from Social Security, 11% from Other Savings and 11% from working.
What should be the ideal balance? Here is a recommendation from Fidelity:
|Age||Retirement Income Factor|
As folks continue to accumulate funds for their retirement nest eggs, those funds grow, so the larger funds will be those held by people just prior to retirement. There have been a number of surveys to get a good handle on this and a reasonable estimate of pre-retirement savings would be about $175,000. That's not a reassuring number. A drawdown of 5% a year, which is at the upper limit of prudence, combined with social security distributions for a married couple, might yield annual income of $40,000-45,000 or so. Depending on the cost of living in the local area, that may or may not be sufficient to make ends meet.
The average size of a retirement nest egg is not enough to last 4-5 years in retirement (about $100K for the ones close to retirement). Most Americans are not prepared for this eventuality and we will hear many more stories about people working longer past their retirement age or people really cutting down on their lifestyle in retirement.
Depending on your age you'd better know what YOU would need in retirement, based on the lifestyle you'd like to have. If closer to retirement and depending on your Social Security contributions you should be able to check with Social Security (online) about your expected monthly income.
Deduct that from what you'd like to have on a monthly basis and the difference has to be funded by you (your retirement accounts). A simple rule is to calculate how much money you'll need annually and multiply that by 25. So if you'll need $20,000 more in retirement (above social security payment) then you multiply that by 25 to get to $500,000. This is the known 4% rule (in reverse). Each year you pull 4% of your investments to supplement your income.
You could be a lot better than average and still not be enough for your lifestyle, that's why asking for it is the same as asking what's an average driver. On surveys, it comes out about 80% of people are better than average, which as you can see doesn't make any sense.
Same with the money, you could be a lot better than average, but still be a lot worse than you need to be.
In my opinion as a Certified Financial Planner practitioner that has helped people with their retirement goals for over 25 years, a better question to ask is, "How much will I need in retirement?"
Everyone is different. Some might need $100,000 a year to live in retirement. Some might need more and some might need less.
If "experts" say you need a nest egg of $1,000,000 or $2,000,000 and they know nothing about you, then this is inaccurate.
I suggest first determining what you think you will spend in retirement. Then add up the income you will receive, such as a pension or Social Security. Then what is left over is your need.
Be sure to factor inflation in to this amount as $100,000, thirty years from now, will not buy what it does today. Also, factor in health care costs as they will most likely rise.
Ideally, it is best to sit down with a professional to help figure it all out. You may learn you need less than you think.
Thanks for asking this question on Investopedia! The mean or average retirement savings is a bit greater than $95,000. But the real story is that approximately half of Americans have NO retirement savings.
You will want to read "The State of American Retirement" by the Economic Policy Institute. See: http://www.epi.org/publication/retirement-in-america/#charts
The EPI study conclusion states that there is an, "...increasingly inadequate savings and retirement income for successive generations of Americans—and growing disparities by income, race, ethnicity, education, and marital status. Women, who by some measures are narrowing gaps with men, remain much more vulnerable in retirement due to lower lifetime earnings and longer life expectancies."
Sobering stuff indeed. Good luck!