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Are You Average: How You Compare To The Average Retirement Savings
It’s human nature to wonder how you may compare to others – are you average height? Average weight? It’s also human to wonder how your retirement savings may compare to others. Your retirement savings should be comparable to those around you as you approach retirement. A financial advisor can advise you on how to manage your retirement savings and plan for the future.
According to the Federal Reserve’s “Report on the Economic Well-Being of U.S. Households in 2019,” 60% of Americans either do not realize if they’re on track or are unsure if they’re on track, which is one of the reasons you might be wondering what is a typical amount of savings for retirement. The Federal Reserve’s most recent data reveals that the average American has $65,000 in retirement savings. By their retirement age, the average is estimated to be $255,200.
These statistics illustrate the situation of people who actually have retirement accounts because about a quarter of Americans do not. 54% of Americans who have accounts have employer-provided accounts, and 48% have non-retirement accounts. A smaller proportion (21%) have pensions.
Vanguard’s “How America Saves 2022” study examined the average and median savings amounts for Vanguard customers in different age groups. Here is a summary:
|Age Bracket||Average Balance||Median Balance|
|25 and younger||$6,264||$1,786|
|25 – 34||$37,211||$14,068|
|35 – 44||$97,020||$36,117|
|45 – 54||$179,200||$61,530|
|55 – 64||$256,244||$89,716|
|65 and older||$279,997||$87,725|
There’s no denying that far too many of us are not putting away enough for retirement. According to the Federal Reserve, one out of four Americans does not have any retirement savings. In early 2020, the Employee Benefit Research Institute estimated that the retirement savings shortfall was $3.68 trillion, taking into account those who don’t save enough as well as those who don’t save at all. This indicates that all U.S. households (with a head of household between 25 and 64 years old) have $3.68 trillion less in savings than they should for retirement.
According to the Federal Reserve, the median retirement account balance in the U.S. was $65,000 in 2019 (the survey is conducted every three years). The conditional mean balance was $255,200.
Retiring on Social Security benefits alone won’t be enough.
Many Americans depend on Social Security payments for their livelihood after they retire. Although Social Security was not designed to be retirees’ sole source of income, this is often the case. Retired workers receive an average of $1,624 per month in Social Security benefits as of July 2022. As older people accumulate ever more debt, few people envision their retirement as a time for travel and leisure.
What Is the Median Household Net Worth?
Americans don’t just lack retirement accounts; net worth overall has risen steadily since the Great Recession, and these numbers tell the same story. At the most basic level, your net worth is the value of your assets minus your debts. For example, if you have a million dollars in investments, and a house worth a million dollars with a quarter of a million-dollar mortgage, your assets will equal two million dollars with a quarter of a million in liabilities or debt, for a net worth of one and three-quarters of a million dollars.
The Federal Reserve tracks changes in net worth for households over the years and reports on their findings. They also report on the distribution of household wealth. When comparing yourself in relation to others, it’s important to understand the difference between average and median. When we refer to the average net worth, we consider all of the numbers and select the mathematical mean of those numbers, so very high net worth numbers may skew the average high as well. The median is the value that separates a group of numbers in half, with half below the median and half above the median – it’s the middle value in a data set. In terms of net worth, the very high net worth of a few people in your age group may skew the average or mean higher, whereas the median is generally a better indicator of what the majority of people in your age group are experiencing.
For those younger than 35, the average net worth is $76,300 (with a median net worth of $13,900). This is a broad age span, and you’re still a long way away from retirement with plenty of time to focus on savings.
In the 35-44 age bracket, the average net worth is $436, 200 (with $91,300 as the median net worth). A million-dollar net worth is a great goal to aim for in your mid-forties, as you’ve got time to let compound interest work on your investments. If you find yourself behind at this stage, you still have time before retirement to adjust and increase your savings.
When you’ve hit the 45-54 age bracket, the average net worth is $833,200 with a median net worth of $168,600. By this age, a lot of the bigger expenses in life are starting to subside (mortgages, college, etc.) and you can devote even more of that income to saving.
For those in the 55-64 range, the average net worth is $1,175,900 (median net worth is $212,500). A loose rule of thumb is to have 10 times your income saved for retirement by this age, so this may be on track is you and a spouse are earning around $110,000 per year.
From 65-74 years of age, the average net worth is $1,217,700 (with a median net worth of $266,400). Many have retired at this point or have just retired if they’re at the start of the age bracket. Once you’ve hit retirement age, you’re spending and not saving, so this is a decent net worth if you’re in spending mode with the highest spending years in early retirement.
If you’re over 75, the average net worth for your age group is $977,600 (median net worth is $254,800). This is another large time frame that encompasses many years, and often once a retiree is this age they aren’t making significant changes to their spending, assets, and income.
The gap between America’s retirement savings and what is needed is startling.
Retirement savings match our income gap as much as we do. Those with higher incomes tend to have more retirement savings and have them at a higher level as well. On the other hand, those with the least income have no savings and are in debt. It is not something unexpected, but it is one of the most prominent features of the retirement landscape.
Despite the fact that those near the top still have substantial retirement savings gaps, it may appear to be counter-intuitive. For example, think of a high-income household with a big mortgage and private school children. They may not save much for retirement, and their extravagant way of life indicates that there would be a substantial gap between their existing income and the retirement income they have saved. Employees with lower incomes may struggle to work into their late 60s and 70s for a variety of reasons, including physical exertion or their employer’s unwillingness to keep them on.
How Far Along You Are in Your Retirement Savings Journey
There are several milestones on the route to retirement savings, and experts generally suggest saving one year’s salary by the time you turn 30.
Saving between 10 and 15% of your income annually is said to guarantee a secure old age, provided that you choose an investment vehicle that delivers inflation-beating returns. An expert can assist you in establishing and implementing a retirement plan.
Why don’t Americans’ average retirement savings match up to what experts say we should have? There are two excellent answers. Our brains have a hard time sacrificing present benefits for future benefits, particularly when those future rewards are decades away. Saving is difficult. We can’t picture ourselves choosing between food and medication in our old age, but we can envisage how we’d spend our paychecks now.
An IRA may be the answer if you do not earn enough to save for retirement. Having to pay for necessary expenses, student loans, childcare, and everything else might leave us with nothing to put away.
The picture is pretty bleak when it comes to average retirement savings in the United States. Even if you save more than the Joneses, it still won’t be enough. You might not be able to maintain your lifestyle in retirement, even if you receive a healthy Social Security benefit and save more than average.
Many Americans say they plan to keep working longer and retire later in order to fill the retirement savings gap. That is one approach, but working until your 70s is not guaranteed. The safer choice is to save as much as you can as early as you can throughout your career.