Are Your Retirement Savings Average? Don’t Let Them Be!

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One of the scariest things when it comes to finances is being average. That is especially true when it comes to retirement planning. The reason retirement planning is so frightening is because average retirement planning is so often inadequate. Let’s take a look at some retirement savings statistics. The numbers are eye-opening! Scary Facts about…

One of the scariest things when it comes to finances is being average.

That is especially true when it comes to retirement planning. The reason retirement planning is so frightening is because average retirement planning is so often inadequate.

Let’s take a look at some retirement savings statistics.

The numbers are eye-opening!

Scary Facts about Retirement Savings

Average Retirement Savings by Age

When you look at the numbers surrounding retirement, it becomes clear that the average

American isn’t going to retire comfortably. Using numbers from Employee Benefit Research Institute’s most recent retirement survey, here are some scary realities:

  • 56% of Americans haven’t performed a retirement needs calculation and have no idea how much they need to save for a comfortable retirement.
  • Those who have performed a retirement needs calculation are more than twice as likely to believe they need at least $1 million accumulated for a comfortable retirement. That means that most Americans are grossly underestimating what they need.
  • 60% of workers have less than $25,000 in total savings and investments, including retirement savings.
  • Since 2002, the number of workers confident about their retirement’s financial aspects has declined.

Most people do not know how much money they will need for retirement, but they also haven’t gotten started on a good retirement savings plan.

Takeaway: Take a few hours to determine what your retirement needs may be and start saving toward that goal. If you are a long way from retirement, make a reasonable estimate – you will have time to adjust later.

Average Retirement Savings by Age Group

Overall, today’s workers are less likely to save for retirement than ten years ago. Consider the following numbers about retirement savings by age:

  • Those aged 25-34 are the least likely to have saved for retirement, with 55% reporting that they save for retirement.
  • 68% of those between the ages of 35 and 44 say they save for retirement.
  • 67% of those aged 45-55 save for retirement.
  • Those 55+ are the most likely to have saved for retirement, at 77%.

You can look at these numbers in many ways. Retirement saving becomes a higher priority the closer you get to retirement age.

There is no greater incentive to start saving than knowing you will need the money soon!

Many people in the more advanced age groups may be better able to afford retirement contributions since they have also had time to increase their income through career advancement and pay off much of their debt. The younger groups are often starting families, juggling debts such as student loans, car payments, and new mortgages.

Takeaway: Regardless of age, retirement savings should be a priority. The more you save now, the longer you have for compound interest to work magic and increase your wealth.

Even a little saving now can reduce the amount you need to save in future years.

Retirement Savings Through Work:

Employer Sponsored Retirement Plan Participation
Do you participate in your employer-sponsored retirement plan?

Most employees with access to an employer-sponsored retirement plan take advantage of it. But almost one in five people do not.

A recent law established guidelines for allowing employers to automatically enroll new workers in their company’s 401k plan or another employer-sponsored retirement plan unless they opt out.

However, this doesn’t do anything for those already working but not participating in their employer’s plan.

This law will go a long way toward increasing plan participation and help people get on the right track for reaching their retirement goals. But employees need to take control of their retirement savings and not leave their contributions or investments to the default settings.

Here are some facts about plan participation:

  • 47% of workers say that they are offered a retirement plan at work, and 81% of those offered a plan contribute.
  • Overall, only 38% of workers contribute to a workplace retirement plan.

Takeaway: Save for retirement if you have access to a plan at work, even if you don’t have a matching contribution. Investing in your employer-sponsored retirement plan gives you a structured way to save directly from your paycheck, making it quick and easy to save.

You also get significant tax benefits. Don’t have access to a retirement plan at work? Then open a Roth IRA or other retirement account. It’s quick, easy, and will help you meet your retirement goals.

Average Retirement Savings = Long-Term Financial Trouble

As you can see, if you are average with your retirement savings, you probably aren’t saving enough. Even though many workers claim that they contribute to their retirement plans, the reality is that they probably aren’t setting aside enough.

Most workers have less than $25,000 in savings and investments (not including primary residence value and defined benefit plans). When you consider that even among those who are 55+, only 22% of workers have at least $250,000 in savings and investments, it becomes clear that you probably aren’t saving enough money for the future.

You would be hard pressed to find someone between the ages of 35 and 44 with more than $50,000 set aside (29%). If you are almost 45 and you only have $50,000 in savings and investments, chances are that you aren’t going to hit your retirement goals by the time you’re 60 if all you contribute is $100 a month.

According to a compound interest calculator, you’d need to contribute $1,000 a month just to have more than $460,000 in your account, assuming a 7% annual rate and not considering taxes).

If you are one of the 24% of those aged 25-34 who have at least $25,000 right now, and you contribute for 35 years until you are 60, you’ll still need to contribute at least $1,000 a month to end up with almost $415,000.

Can you imagine how much you’d have to contribute each month to end up with $1 million? Your best option is to start as young as possible and contribute as much as possible.

You can contribute to a 401(k) or an IRA. And when you max out your retirement options, you can use taxable accounts. Use automatic investing plans, take it out of your paycheck, and use the employer match. You’ll build wealth faster and beat the average regarding retirement.

Now that we’ve clearly defined the problems and issues a lot of people are facing, let’s explore some solutions.

How Much Will I Need to Retire?

There are so many variables to consider and each person’s path to retirement is uniquely different. You will need to decide what all of your costs are, how those will stack up against your savings and retirement income, and then adjust accordingly.

One of the best things you can do is start to plan early. Also, consider meeting with a financial planner who will help chart your path to a financially secure retirement.

There is no single answer to this question. But it’s smart to seek answers as early as possible to have a solid plan in place.

How to Calculate Your Retirement Savings Target

Several tools can be used to start calculating a retirement savings target. Of course, savings are just one component of an overall plan. Still, you’ll want to have this answer to lock in other elements of that plan.

Nerd Wallet has a good and easy-to-use retirement calculator that will help you plan.

Synchrony Bank also has a lot of good calculation-based tools and formulas you can use.

You might also try the tools offered by Bankrate and The Motley Fool to help you get the answers you’re looking for.

How to Stay on Track with Your Retirement Savings

You’re never sure what life is going to throw at you, and the best-laid plans often get disrupted one way or another. But you should still try to stay on track with your retirement savings.

Here are some strategies to help you do that.

Set a goal and start early.  When you set a goal, you’re starting to hold yourself accountable for your future. You also can take greater advantage of compounding your money over time.

Create a budget and stick with it. Easy to create. Many times tough to stay with it.

Contribute to your employer’s sponsored retirement plan.  Company matches are just like giving you free money. everyone who’s eligible should use it and contribute pretax dollars for an even bigger win.

Increase your savings each year.  Start cutting back on frivolous or unnecessary expenses and start stashing that money away instead.

Automate savings and invest excess cash. Remove temptations by automating your savings and investing each money. Many employers offer the option to send your wages to multiple accounts.

Instead of sending everything to your checking account, look to send part of your paycheck to either savings or a retirement account. Also consider using a target date mutual fund that lets you pick a managed account that closely matches your expected retirement date year.

Take advantage of catch-up contributions if you’re over 50.  This can be a huge added value move for your retirement savings.

Diversify your investments. Protect against various economic forces that could threaten your nest egg. Also put your money in different tax-status accounts (tax-deferred, tax-free, and taxable)

Tips to Help You Save for Retirement

  1. Monitor your investments in pre-retirement. Look for investments with predictable income sources, but remember the more predictable the income, the lower the return.
  2. Plan for inflation. Assume prices will go up and plan for it.
  3. Talk with your spouse or significant other about retirement spendin
  4. Focus on physical health. Save money by saving on health costs as you get older.
  5. Get serious about creating a budget and then have the discipline follow it. Most people don’t bother to calculate how much they can safely spend in retirement. However, that’s exactly what you need to do to minimize budget stress in your golden years.
  6. Get a good investment professional. If you’re not good at managing your investments, finding someone who is can be money well spent.
  7. Watch travel expenses in retirement. Don’t overextend yourself just because you’ve got the time you never had before.
  8. Pay off your mortgage. Paying off your mortgage lets you tap into your home’s wealth by living there rent-free and eliminating a significant monthly expense. Still plan for monthly expenses which should be a lot less overall.
  9. Work longer. Some people do it because they want to while others do it because they have to. Either way, one of the best actions to ensure you have sufficient money well into retirement is to work a few additional years beyond what you originally had planned.
  10. Expect to spend more. More free time means more opportunities to spend more money. Find low-cost hobbies or set up a budget that fits within your means.

Ways to Boost Your Retirement Savings

  • Start today.
  • Contribute to your 401(k) account.
  • Meet your employer’s match.
  • Open an IRA.
  • Take advantage of catch-up contributions if you’re age 50 or older.
  • Automate your savings.
  • Rein in spending.
  • Set a goal.
  • Stash away extra funds
  • Consider delaying Social Security for as long as possible.
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About Miranda Marquit

Miranda Marquit is a freelance writer and professional blogger. She has contributed to, and been mentioned by, numerous financial web sites, including USA Today, The Huffington Post, The San Francisco Chronicle, The New York Times, Consumerist, The Atlantic Wire, The Wall Street Journal, The Washington Post, and other publications.

Her blog is Miranda Marquit.

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  1. Tampa745 says

    I have a 401K that I max out, a savings plan that stays put and an IRA. My 401K is money I never miss, I have my bonus go into my IRA and never miss it, and once my checking acct reaches a certain limit, it goes into savings acct. Hard rules that pay off, it hurts at first, it hurts like hell but you do it, somehow you do it. Didn’t think you’d pass 10th grade Geometry either

  2. Henry Lim says

    Currently 40 . I want to retire in 10 years when my son finish schooling. Currently have $386k in a brokerage account, $68 k in the Roth IRA, $12.5k in an HSA, $58k in a 529 plan and $228k in a 401k. Fully funded emergency fund in an online bank account. I’m saving over 50% of my gross every year. Gonna enjoy been free in 10 years.

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