This post will explore the retirement savings by age in America. Unfortunately, the retirement savings by age is pretty low. However, the numbers are getting better.
From a personal finance writer’s point of view, I found a pot of gold with the Economic Policy Institute’s report looking at the state of American retirement. In this report, I’ve come to realize how screwed the average American is when it comes to enjoying a comfortable retirement.
It’s perplexing to me why Americans don’t have more in retirement savings given we’ve seen a massive boom in the stock market, bond market, and real estate market for the past…. forever.
If I was a working adult back in 1980, I’d like to think I’d be worth at least $10,000,000 today. Not only would I be worth $10,000,000, so would all my friends. How hard can becoming a deca-millionaire be when the S&P 500 is up over 20X since 1980?
Look at all the real estate you could have bought for dirt cheap 40 years ago as well. But let’s get real. Life happens. Everything is easier said than done. If only I had a time machine.
The main reason why I think more Americans aren’t doing financially better is due to a lack of education. Why aren’t personal finance fundamentals indoctrinated in kids by the 12th grade, I don’t know. I certainly plan to teach my child about the power of compound returns, saving, investing, asset allocation, and the importance of optionality.
Let’s take a look at some select charts from the Economic Policy Institute report. The Economic Policy Institute is a 501(c)(3) non-profit American think tank based in Washington, D.C. that carries out economic research and analyzes the economic impact of policies and proposals. I still have my doubts about the efficacy of the data since there are some truly worrisome numbers being reported.
The State Of America’s Retirement Savings
The first thing to note from this chart is that it’s highlighting household average (mean) savings, which includes individuals and couples. To be between 56 – 61 and only have $163,577 in your retirement account means you are going to be living a spartan life once work stops.
If you spend just $33,000 a year in retirement, your money will run out after five years. Hope must come from Social Security benefits to help them make it through the golden years.
Only the 32 – 37 and 38 – 43 age groups have more in retirement savings in 2013 than they did in 2007. The amount of increase in retirement savings isn’t that impressive either ($4,500 for 32-37 and $13,000 for 38-43).
It’s strange why the 44 – 61 age group have shown a 23% decline in their retirement accounts during some of their prime earning years. Did many in this age group sell their investments in 2009 and stay in cash? It looks that way because by Jan 1, 2014, the S&P 500 was 20% higher than right before the crash on July 1, 2007, and 120% higher since the low on January 1, 2009.
In Understanding Why The Median 401k Balance Is So Low, I profile several readers who explain what’s going on with their low retirement balances.
If the median age in America is about 34 years old, this means the median American only has $480 in retirement savings (blue line 32 -37)! That is kind of crazy and very unbelievable. At least folks between 32 – 37 have 25 – 30 years left to save aggressively before Social Security kicks in.
For the people in the 56 – 61 age bracket, they are walking on thin ice with only $17,000 in retirement savings. It is scary to see the median retirement account balance is less than half their pre-recession peak. Surely balances are higher now in 2017, but I bet they are not back to even.
With median numbers this low, it’s only logical that taxes on those who have saved for retirement will go up to pay for those who have not. Further, such low numbers mean government welfare should only get larger.
Once again, half of Americans (50th percentile) have almost no savings ($5,000). Meanwhile, the 90th percentile family had $274,000, and the top 1 percent of families had $1,080,000 or more (not shown on chart).
You would think being in the top 10% of retirement savers between age 32 – 61 would yield greater than a $274,000 savings account. All a 46 year old (average of 32 – 61) needs to do is save $11,416 a year for 20 years after college to get to $274,000. Once you add on company 401k matching and investment returns, getting to $274,000 should be highly feasible.
The $60,000 median savings for all families with retirement savings may be a truer reflection of the average American savings. The mean (average) of $95,776 is more than 50% higher because wealthier families are drastically pulling up the average, indicating widening inequality.
Thankfully, stocks and real estate have continued to perform well through the global pandemic. The average retirement savings by age should be roughly 20% higher in 2021.
Does America Truly Have A Retirement Savings Crisis?
Despite all this wonderful data from the Economic Policy Institute, I’m having a hard time believing these figures. Is the report perhaps… fake news used to raise taxes and enlarge government oversight for power hungry politicians? After all, if you make people beg for money, you can control their votes.
The median retirement savings account for families age 56-61 is only $17,000? Come on. This means the median family is never going to retire or is going to die of starvation within five years after retiring.
The median retirement account savings of all American families is only $5,000? This number sounds like it would come from one of the poorest countries in the world, not the absolute richest.
Whatever the true mean or median retirement savings balance is in America, the biggest difference comes from those who actually decide to save for retirement and those who do not.
The long term trend for stocks, bonds, and real estate is up and to the right. Further, once you start religiously tracking your money, you’ll plug all the leaks. If schools aren’t willing to provide basic financial education, at least Financial Samurai and other personal finance sites will.
Recommendation To Build Wealth
Manage Your Money In One Place. Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms.
I’ve been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.
Invest In Real Estate As Well
If you want to boost your retirement savings, then I recommend also investing in real estate. Real estate is a core asset class that has proven to build long-term wealth for Americans.
Real estate is a tangible asset that provides utility and a steady stream of income if you own rental properties. As a retiree, I mostly depend on my steady rental income to survive + stock dividend income.
Given interest rates have come way down, the value of rental income has gone way up. The reason why is because it now takes a lot more capital to generate the same amount of risk-adjusted income. Yet, real estate prices have not reflected this reality yet, hence the opportunity.
My favorite two real estate crowdfunding platforms are:
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends.
Both platforms are free to sign up and explore.
I’ve personally invested $810,000 in real estate crowdfunding across 18 projects to take advantage of lower valuations in the heartland of America.