This post will explore the retirement savings by age in America. Unfortunately, the retirement savings by age is pretty low, which is why Americans need to work longer.
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. 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 children 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. A household 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.
Median Retirement Savings By Age
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. In fact, the majority of working Americans don’t pay federal income taxes! 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 an average of $274,000 in retirement savings. The top 1 percent of families had $1,080,000 or more in retirement savings (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 dramatically pulling up the average. This indicates 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.
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How Much Should I Have Saved By Age For A Comfortable Retirement?
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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.
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Retirement Savings By Age is a Financial Samurai original post. I’ve been writing about achieving financial independence since 2009. I’m positive if you read my book, you will boost your retirement savings by age.
I started investing in a 401(k) at 26 years old 20 years ago, making $35k/year, saving around 10% and it has been once of the best financial decisions I’ve ever made. My only regret was not starting when I first entered the work force at 24. Every time I got an increase in salary, I’d bump up my contribution rate. Even through the 2001 recession and the 2008 crash, I kept the same long term growth allocation (equities) in my retirement savings making very minimal changes to my investment options and each time I changed jobs, I would roll over my 401(k) into the new plan instead of taking a distribution. I know people my age who have taken distributions when leaving companies and their reasoning was that they were young, and that they had time to build up their retirement savings which of course is bone head idea because they are now in their mid-40’s with very small retirement accounts. What also helped my retirement savings was delaying marriage and having one child at 40. Both my husband and I are on track to retiring comfortably in about 15 years with pre-tax and after tax savings. So I agree, the key is start early and gradually increase contribution rates, and keep invested in equities.
Good job Veronica! Yes, time in the market is huge. I regret not opening up a Roth IRA in my 20s as well. The account could have been worth over $200,000 today and tax-free withdrawals if I did.
Congrats on your little one! We are also older parents. My son came two months before my 40th birthday.
Thanks for sharing your thoughts! Please sign up for my free newsletter if you want more great personal finance content. Also, I have a new book coming out with Penguin Random House called Buy This, Not That: How To Spend Your Way To Wealth And Freedom I think you’ll enjoy too.
Best,
Sam
Thank Sam. I just preordered your book. Looking forward to reading it!
It’s amazing to read how easy it should have been to have a retirement. So much has happened to my husband and I and our retirement. It’s not always the persons fault for not having any. We had a very nice retirement and my husband lost his job, we lost our home, cars, etc. while in the middle of raising our family. And yes, lost our retirement. And it wasn’t just our family, it was many families at that particular time. We have not nor do we expect to ever recover what we’ve lost due to economics of our country at that time. Parts of this article and some of the comments make my stomach turn. Everyone is not in the same situation. At this point in our lives, we’re scared to death. People make us out to be stupid. Unfortunately, shit happens at times that is out of our control. I would love to know where that perfect life is that everyone is living.
Thanks Sam for the article. I am a student who is writing a research paper about “Is American saving enough?” I just came to the U.S 3 years ago and I began to build my IRA 2 years ago. The more I have learnt about finance, saving and retirement, the more I am surprised about people around me thought about saving and retirement. Last time, a friend asked me about investment and retirement plan, and I told her what I knew, such as saving, compound interest, 10% average yield on stock investment, things like this. After that, she just said “I can save like 200$ a month, and I want to retire at 35. I don’t want to work till death.” I fail to convince her that it’s not what she want, but what life is. I really hope that our institutions will have more class saving and investment, and maybe a more interesting way to teach them. As we all know, young people do not like to think about old age and retirement.
Kids are taught plenty of thing in High School they forget six minutes later. Fine, get ride of chemistry and calculus since 98% of kids never use those classes. Basic science can cover biology and chemistry.
I have a good friend who is 35 and earned over a million bucks over the past three years-not a dime was placed in savings! I asked her to start saving, but she refused and told me she liked working and will do it until she dies! Millennial’s?? Generation Z I do not know butt….?
I am a Gen X!
I am Gen X as well. It is difficult to encourage saving when that work until the end mindset is used as an excuse to not save. Sounds like your friend lives check-to-check.
Usually something bad has to happen like a health scare or getting laid off in order to change. In our case there was a wake up call with the pandemic, and being hospitalized, and that was enough motivation to start putting aside money. I even did a financial assessment for the first time ever which was both fun and scary at the same time. Fear was a driving force and motivator to change.
Fortunately we have no car payments or debt (other than the house) and the GI Bill prevented student loan debt. There were people on our block who financed 2 new cars, during COVID, and then had the gull to file for emergency rent relief (they did not pay the land-lord) claiming they could not afford to pay rent. There old cars were fine but not as trendy so they “had” to get new ones.
I’m a huge Financial Samurai fan generally — and, having found this post just today (2/15/19), I’m quite late to this party — but I gotta say that find the amount of stereotyping about the working-class, working-poor, and poor that appears in readers’ comments on FS’s (tacitly judgmental) original post truly distressing.
The assumption that folks whom life circumstances (ranging from industry shifts to simply being born into the ‘wrong’ family or the ‘wrong’ zip code) channel into dead-end, low-paying jobs have access to rivers of cash that they blithely blow on fancy cars and other trifles instead of saving for retirement reifies the worst and most inaccurate misunderstandings about what it means to live from (small) paycheck to (small) paycheck in this country.
(I’m a ‘pragmatic-liberal’ Democratic voter who stumped for Clinton in my state’s 2016 primary and main elections, but reading the comments posted here, I thought to myself: “If this thread is any indication, Bernie Sanders, AOC, and other hard-Left Progressives who rejected Clinton as too centrist are on to something when they say that the average wealthy- or upper-middle-class American neither truly understands the lived reality of the nation’s working-class and working-poor nor cares enough about said lived reality not to belittle the folks who are living it.”)
I agree, however, with the assertion of FS’s original post and many of the responding comments that comprehensive training in viable retirement saving strategies and general financial management wouldn’t go amiss in most U.S. communities.
Given the tone of the comments posted in this thread, I can only assume that those who’ve posted here spend a few hours every month or so making gratis financial literacy presentations in local secondary schools, community centers, and the like in a concerted effort to bring the rest of the population up to speed.
For your part, FS, if you’re making such presentations at, say, the many high schools and rec centers across the Bay in Oakland that could benefit from such outreach, I’d wager that more than a few of your readers (myself included) would love to see you reflect upon such activities in future posts. … (In the meantime, thanks again for your great website.)
Thanks for sharing your thoughts. Here is a follow up post that surprisingly shows the average 65+-year old is doing pretty well!
The Average Spending Amount In Retirement Is Surprisingly High
Americans are doing fine after all!
I think that you’ll find that the numbers you’ve found include the approx 1/3rd of American’s that have $0 in a Qualified Retirement Plan. It really skews the medians and averages.
Data that excludes these people from the stats will show more realistic numbers for those that do contribute to a QRP.
“Why save when you can Buy a Ford F150 Raptor for 70K and be the coolest dude in your Hood!!”
Yeah……..that is only $833/mo for 84 months!! Who, with a decent job, WOULDN’T do that! $833/mo for 30 years @ 10% compounding interest is just a myth and that is too late to be cool in the hood!!!
If you are over 30 and your cars(depreciating asset and worth way less than people want to admit) are worth more than your saving, you will never retire!
Why save when you can Buy a Ford F150 Raptor for 70K and be the coolest dude in your Hood!!