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.
The people that say that they’ll just work longer to make up for their lack of retirement savings are amusing to listen to… Let me assure you that most 70 year olds are not as productive as they were in their 40’s and 50’s, and typically need significantly more time off from work than those who are 20 years younger. But they are typically at the top end of the salary scale for their position. These older folks simply WILL NOT be able to hold onto their job unless they are in an area that accords protection based on years of service. Look at it this way – if you were the “Boss” would you rather have two 35 year olds working for you or one 70 year old – assuming the costs for either option would be about the same ??? Yes – I’m well aware that there are age discrimination laws – but there are numerous ways around them, and “poor performance” is certainly one reason to legitimately terminate someones employment.
While there is no question that many who don’t have adequate retirement savings may have other assets that they can use to provide for retirement income – I would suggest NOT including the value of a primary residence – you have to live somewhere, and IF the primary residence is paid off – the costs to keep it up (taxes, repair etc.) are probably lower than a rental in the same area.
A number of years ago – I read that one sign of growing up is the ability to postpone gratification. It appears that based on that one definition – we have a lot of children out there. Sure – it’s great to be able to take a nice vacation, or to eat out regularly, but there are costs to doing these things. If doing these things impedes you from achieving your savings goals – then the truth is that you simply can’t afford to do them.
Not surprising really. There aren’t many mid-level jobs anymore. There are tons and tons of service type jobs that pay far below the median and many jobs that pay well above the median (doctor, lawyer, engineer, scientist, high-level manager)
Between rent, healthcare, and necessities there is just very little leftover to save unless you have the mental aptitude, drive, and health to find a high income jobs.
Then add the fact many people compound the problem by making poor financial choices or by being financially illiterate and its a recipe for disaster.
The poll here isn’t likely to be representative slice as the average reader of this blog is likely already doing well beyond average.
I did up a spreadsheet experiment a couple of years back because I have too many friends who think “the system is broken”.
Two families. Two different decisions. 30 years of time to see what happens.
Family One buys a $250,000 house on a 30 year mortgage at 5%.
Family Two buys a $125,000 house on a 15 year mortgage at 4.5%
Family One buys a $60,000 new car every 10 years. That’s 4 cars.
Family Two buys a $10,000 low mileage used care every 10 years. Ditto on 4 cars.
Family Two puts the savings in the mattress because they don’t know how to invest.
What happens after 30 years?
Family Two has about $500,000 more money than Family One.
HALF A MILLION DOLLARS.
If they had invested those savings Family Two would even have way more.
My wife and I started a rental property business on the side. A person at work who knew we were doing that started to get pissy about it. Their attitude was, “Why do they have these houses making money and we don’t?”
I asked them if they had noticed how very many $60,000 pickup trucks were in the parking lot outside. They said they had.
“Well, you’ve seen that beat-up old car I drive. That $60,000 pickup truck I DID NOT BUY accounts for our first rental property. My wife drives another beat-up old car. That $60,000 pickup truck she DID NOT BUY paid for the 2nd rental property.”
“You know the bulletin board here where people post their houses for sale when they get transferred to another town? In the last 9 years, I’ve only seen 2 houses for sale that cost less than our own home plus the first 3 rental houses we bought.”
“We have somethings other people don’t have and they have things we don’t have.”
“Choices have consequences.”
People don’t like to hear that choices have consequences.
But the universe doesn’t give a damn about that – so choices still have consequences.
I was just recently talking to one of my colleagues. He’s got ton of student loans. He didn’t know what a 401k was. My company offers 5% matching. No one had ever told him that 401k contributions are essential and the company matching is free money. I showed him the power of compounding and the importance of contributing to a retirement account. Hopefully I can help more people through my website. Thanks for the informative post!
It still perplexes me that we haven’t implemented personal finance courses into school curriculum. It is arguably the most important subject matter an individual can learn and is directly applicable to every facet of an individuals life. Having worked in finance for a few years it all makes sense to me now, but I remember when I started my first finance gig right after college it was just information overload. The world of finance is such a nebulous field and nobody really shows you how to navigate it, except maybe your parents. Until our schools begin teaching our children these important lessons, it is on us to do our best in providing that education for our children and others.
This “study” IMO is just another example of “fake news” and I don’t believe the study even comes close to representing the true financial state of people approaching retirement. After all, the vast majority of people do retire, and they are able to survive financially which this “study” seems to indicate would not be possible.
There are several keys to indicate you should be concerned about bias in this report. A few examples are as follows: (1) A not for profit think tank with an official sounding name (almost all D.C. think tanks work for someone in gov’t wanting a study to support a policy change), (2) the information is from a “survey” of consumer finance data (who did they survey? would you tell some D.C. organization all the details of your financial accounts), (3) no attempt made to identify all sources of savings and investments (real estate, land, rental property, other taxable financial accounts, etc.), so they really were not interested of finding out if people are prepared for retirement.
It is easy to mislead and lie using statistics, or “survey” information. For example, consider how the data is presented in the chart about how the gap between the “haves” and the “have-nots” is wider now than just a few years ago. It may be, but this chart would look very different if put on a percentage basis. Suppose Group 1 had $5 in 1989, and Group 2 had $10. Group 2 has $5 more or 100% more money than Group 1. If Group 2 had $100 in 2013, and Group 1 had only $50, then you could say the wealth gap between the two groups has “really grown” from $5 to $50. However in reality, the wealth gap has not changed at all because Group 2 still only has 100% more than Group 1. Do you think someone may want to use this study to show a need for “policy changes” or new laws to create more wealth redistribution (which really means buying votes)?
Yes, a lot of people have not saved enough for retirement, but the vast majority are better prepared financially that this report implies.
Both the statistics and the poll results show some interesting facts.
Personally, I’m in my 30’s but have (unfortunately) never taken retirement seriously up until recently. As a young adult I always thought time is on my side. Sadly, this is what most young adults still think.
These numbers are definitely alarming. I hope that they are only revealing a portion of the truth. Otherwise, there will be a lot of misery.
I’m glad I’m not the only one who thinks the major data is exaggerated to the worst. People click on bad news more often than good. I didn’t vote in the polls because I know our family is definitely above average and it would skew off your data.
I can tell you my immigrated parents who has been in the US for almost 17 years has saved up a total of 30K each for retirement and they are hoping social security, medicare and ME to cover rest.
I think that, like many of our politicians, people are inclined to assume others are like them. There are many, many, many people who count on social security alone for their retirement. Savers and planners are a true minority, and the number of people who live paycheck to paycheck and pay the minimum amount on their credit card debt is astounding to those of us who actually read financial newsletters and contribute to our retirement savings.
I think the survey is only relevant to the data it used and not reflective of how well people will perform in retirement since it is based solely on what people show in retirement savings. My Dad passed away 3 years ago and my Mom has ZERO retirement savings. What she does have is $50K in cash, $700K in CDs and $4K a month in pensions and SS and no debt. Her CDs throw off another $1K/mo. in interest.
Needless to say, she lives a very comfortable retirement life and plenty of money to support virtually anything that might come up. Many people in her age class are not quite as fortunate but most of them have lived their entire lives within the means of what they have and seemingly continue to get by just fine.
I don’t worry as much about my parent’s generation but I do worry about their children’s generation. They have had more emphasis on retirement savings and they, as a whole, are not traditionally living within their means like their parents did. If these numbers are really reflective of the retirement savings of my generation, then this could be where the smoking gun lies…
I referenced that data in an article as well. It’s very sad to see.
At least many of them have equity in their home. The median figure of $17k for families in their late 50’s is only for retirement accounts. A significant subset will have a nearly paid-off home, which will help keep their housing expenses low or will allow them flexibility to move to a cheaper place and bank the rest.
Still, the numbers are nowhere near where they should be. Personal finance should be a standard course in all levels of schooling, imo.
If the EPI numbers are just directionally correct, a huge number of people will retire with little to no income, and a huge challenge to meet basic needs. But fear not! The over 65 set are a large and most consistently voting component of the electorate. Expect them to demand and receive benefits beyond what Social Security provides, and vulnerable politicians to support them regardless of political party. Where will the money come from? FI people, such as those who read this blog. 2% annual tax on the full value of 401K’s and IRA’s, anyone?
Yeah . . .let’s keep ‘Warren the Confiscator’ out of this conversation . . . I still think that you can’t legislate against stupidity. It really doesn’t take too much to look at the Fidelity (or other) research data to see that ‘T’ pays over 5% and banks don’t.
My wife and I live on the dividends of the $400,000 or so that we saved over the course of 35 years of working. Of course, it’s worth close to 1M now, but that why we invest.
We also invested in Utilities, Dividend Aristocrats, and others like MSFT, CSCO, BP, RDSA, other pretty good investments. Just pay attention and save like the tortoise (vs. the hare)!
Yeah, every time I run across numbers like this, it really blows me away how little people have saved. There is a crisis here for sure. 100%. And with the coming rise in AI and automation, there will be further displacement of jobs which does not bode well for even people with white collar jobs and high-barriers-to-entry jobs like anesthesiologists. The figure I’ve heard time and time again is that roughly ~50% of jobs will be gone in the next 20 years. Because of this, I think there will be some form of universal income to sustain the masses.
It’s indeed scary. So many of us are living on the verge.
My husband works in tech as a developer and is a strong supporter of universal income specifically because he can’t see most Americans pulling out of the AI revolution unscathed.
The heck with that! Work for a living — just like the rest of us! We don’t need loafers or leeches . . . when both my wife and I were unemployed, we managed to do whatever we could until we got back on our feet — They’ll need to learn to get over it and not have everything handed to them for once.
I think that these statistics are probably a good reflection of the problem. One positive is that they don’t seem to account for post employment pensions. So I’m only feeling a mild case of panic about the whole thing……
My parents retired with a paid-off house, federal pension of about $45k/year, and about $4k/year in Social Security benefits. They had retirement savings of about $600k, but hardly touched it until the last 18 months of their lives. They lived very comfortably, but modestly, and even had live-in help for several years. The big factor was the federal employees’ insurance, which kept their healthcare costs down to about $300/month.
Americans will retire broke. I think the statistics are accurate. Look around. Most people are living above their means. They are rich by perception but broke in reality. It’s sad. We work too hard to be broke in retirement.
I’m convinced that the retirement savings crisis is largely an overstated myth. Sure lots of older people live in poverty, but millions of people retire every year by choice or circumstance and live perfectly fine non-impoverished lives. Is this by magic??
For one thing, many people have numerous retirement accounts – not to mention non-retirement investments such as real estate and brokerage assets. My husband and I have three 401ks and three IRAs between us, plus an HSA, a brokerage account and 5 rental properties and three checking accounts. Our “median” or “mean” retirement savings balance is well under 6 figures, but we are millionaires in our 30s.
My dad has about $450k in an IRA but $3M in other investments and no debt. He was self-employed most of his life and didn’t have 401k space available for most of it.
My in laws are pushing 70 and have about $250k in two IRAs. They also have $120k in pension/SS income and no debt.
Lots of my wealthy clients have little to no investments in traditional retirement accounts. For most their retirement account is their smallest asset. They have stock options and employer stock and trusts and brokerage assets from the sales of businesses – or they still own a profitable business – etc.
It sound like most of the situations that you’re describing would impact the mean, but not the median.
I do think these statistics skew reality a little bit. I don’t think “retirement accounts” is yet a good proxy for “retirement readiness.”
I think older folks often had jobs that provided pensions, reducing the need for retirement accounts.
The 401k account has only been around since the early 80’s, and took years before seeing widespread adoption among companies. Therefore, many older workers, whether they had a pension or not, often didn’t have access to a 401k.
Traditional IRAs were established in the mid-70s, but had pretty ridiculously low limits for a long time ($2000/year from 1981-2001, for example).
Roth IRAs have only been around since the late 90s.
I think the pool of people for whom retirement accounts conceivably make up the bulk of their actual retirement plan is still quite small. Using retirement accounts as a proxy for how retirement ready people are is fallacious in that it ignores the older workers who had access to pensions, the government workers who to this day have access to pensions, and the people without access (or with very limited access) to accounts who have saved for retirement by other means (taxable accounts, real estate investments, businesses).
Then, among those who are left, most are young and so have had little time to really get going on their retirement savings. And, however you slice it, the lower-income folks just won’t be able to save a whole lot, regardless.
Then there’s other wrinkles: how many people are the lower-earning spouse who will depend on the accounts and savings of their higher-earning other half? How many people have a trust? How many people could put money in retirement accounts, but are funneling the money into business ventures instead while they are young? A successful business can be a lot more lucrative than an index fund, and if it fails there’s still time to catch up.
While I’m sure there are plenty of people who could save more, and plenty of people for whom retirement will be difficult, I think these numbers need to be taken with a grain of salt with regards to the picture they seem to present. It might still be decades (if ever) before “retirement account balances” can be interpreted as “retirement readiness.”
Hi Sam,
I’ve been an avid reader for a couple years and just wanted to tell you that you have no idea how much you are contributing to the public good and American society overall. The financial independence community is one of few movements that can remedy many societal plagues.
Don’t expect our intentionally flawed education system to teach personal finance. Empowerment is not the purpose of education in America.
It’s the job of the FIRE community to spread personal finance knowledge and empower people to end their financial servitude.
Thank you again for your contributions.
Working class people don’t read blogs like this so your poll will be skewed.
Basic facts for the last 400 years: the capitalists only give the working class the absolute minimum necessary to make more workers.
So we had to fight for the state to guarantee us a retirement. Blood was shed for this, along with the eight hour day, workmans comp, etc. See: 1877 great strike, bonus army, battle of Blair mountain, homestead strike, coal creek war, Pullman strike, the IWW.
Now most prior shrug their shoulders and accept that this will be done away with. If no one fights against it, instead buying into the right wing “personal responsibility” garbage, the US will continue it’s decline into a place where life for the working class is actually worse than it is in poor countries.
Thailand has universal healthcare and a clean subway and train system. New York has a crumbling filthy subway system and if you can’t afford healthcare you are out of luck.
This is the society we have constructed, and it’s why I left America.
America may have its shortcomings but it is the best country on earth. It truly is the land of opportunity. You’re in the minority wanting to leave the US. Even after the last presidential election. None of the celebrities left who said they would!
Most of the working class make more than enough money to easily save 10% + 401k match every year, which in a double income household easily gets you to millionaire at 65. They just choose to spend their money on other things (iphones, expensive plans, cruises, restaurants/eat out as much as eat in, giant suvs, 3k sq ft homes with granite countertops with a 2-3 car garage, etc). It’s also not hard with a good work ethic to make decent money without a degree. I went from ~minimum wage to $45k/year (in Today’s $) in less than 3 years at a supermarket when I was 20-23. Not a fortune, but easily live a very comfortable live, and yes save 10% (and could have done a little more with any amount of discipline at all).
Agreed. I think a large part of it comes down to education. The power of compounding interest is A) somewhat unintuitive to understand at a young age and B) far enough in the future that the motivation to understand it is low.
Incorporating (and perhaps mandating?) better financial literacy in our educational system might be a piece of the solution.
At what point do you accept that “personal responsibility” exists? We can exclude those who are substance-dependent or ill or old. Who else? The ignorant? With the internet and cheap widely-available smart phones that’s not much of an argument anymore. Do you want to claim that laziness doesn’t exist or that almost no one is lazy? Because that’s as ridiculous as right-wing claims that homeless addicts should (or are able to) pull themselves up by their bootstraps.
People make choices. And they are ultimately responsible for the cumulative effects of those choices, especially when they involve avoiding change or laziness. Even if you start out forced to make bad choices, you come to a point where you can change those choices for a much lower cost. And if you choose not to do that, then that’s a choice too.
Amen. Some of our contemporaries i.e about 61 years old, chose to buy boats, RVs, second homes, swimming pools, upgraded homes and cars every few years, extravagant fad holiday gifts, the latest electronic gadgets and now have lower amounts in the retirement accounts than others who made different choices. That is not inequality.
Paul,
I believe you are misguided. The episodes you mention were led by opportunists who just created a “market” and then capitalized on it. These snake oil salesmen (union leaders) are no different than the capitalists you apparently hate. Others, like me look at capitalists as leaders and idea generators who create opportunities for those willing to partake and bring us the goods and services we desire. If they get rich along the way – good for them.
Personal Resposibility does exist! I started working at a pizza place at 23, I was working 3 jobs, sometimes 4 – economy was bad where I was at – saved $25,000 in three years, bought my first store at 29, put most of my money back into the business, donated a lot of money and pizza to the community. That is when the state, Federal & unemployment taxes wasn’t taking it (over 40%) I lost over half the value of my business in 2010 & 2011, but I had minimized my debt so I just hung on, bottomed in 2012 started climbing again. I helped 3 (tried to help more) of my employees start at the bottom and do what I did. I sold my business for $4M last year and paid well over a Million dollars in taxes. I took a year off and I’m starting over again, in a completely different business. I’ve been very blessed, but this is a great country thanks to our Constitution that protects many of our freedoms. I will NEVER work for a greedy corporation or Wall Street company and I will only buy from them when I have to.
No matter where you live, ‘personal responsibility’ is innate. No able-bodied, thinking person should expect help from the ‘state’ . . . think Thomas Jefferson, JFK, Warren Buffett . . . or anyone with half a brain.
The reason New York is falling apart is exactly the ‘half to take care of the world’ wasting of money and effort on people who should be standing up for themselves, not because of those who do . . .
I work in the Industry with 401k/403b participants and I can tell you this data isn’t far off at all. I rarely see someone 50+ with a balance with our firm over $100,000. You’ll have a few outliers but its very rare. Now we may or may not have all of their assets but when I do ask I don’t hear, Yes, I have a lot more assets held elsewhere for retirement. I also see people who start late for whatever reason either due to “I forgot to sign up years ago” or just not having a job with a 401k until later in life.
I alos find a lot of people don’t know that you can invest and save in a non-retirement accounts. I mention this to people and they’re surprised thats even an option. I speak to a lot of doctors and well compensated people who max out their workplace plan and an IRA.
Am I the only one who thinks this is going to be a national crisis? The country has shifted from a defined benefit model to a defined contribution or do it yourself model and most are woefully underprepared for this. Many think they work forever to make up for any shortfall but this isn’t realistic at all. To me it has vast economic implications over the next 25 years and is very deflationary as consumers will need to cut back.
Does this take into account rollovers though? I just joined a new firm 2 years ago and have only been able to contribute to it for 18 months and have about $40k saved it in (plus another $40k in a NQ Def Comp Plan). Meanwhile, I rolled 6 digits+ over from my last 401k into my IRA account with a different firm.
The Fed Reserve says roughly 1 in 13 households are worth 7 digits, for example.
I live in a very affluent community(average household income is ($128k) and now that my wife and I have reached the age that we are sending our kids off to college we have come to realize how poor most Americans, even higher income ones, are at saving. Many of our friends who live in homes worth $800k or more and make $200k+ per year have saved very little, if anything, in a college fund. Many of them seem annoyed that both of our kids are attending private colleges and will graduate with little or no debt. We started saving in 529’s when our kids were born, initially $400 per month and increased it later as our incomes rose. If our 50ish year old friends haven’t saved anything for college I can guess that many of them only have a $100k or so in their 401k and other retirement accounts. I believe many of our friends will be working to age 65-70 simply because they are poor savers. Of course most of our friends always drove much nicer cars and owned the toys that we didn’t. We can’t even talk about the fact that we are retiring in our early 50’s in the next year or two. My wife and I both started contributing to 401k’s in our early 20’s and neither of us made six figures until after the age of 35. We now both have 7 figures in our 401k’s and 2 homes that are paid for along with some rental properties that are mostly paid for. Our kids have jobs and they both are required to save 50% of what they make since we pay for their food, shelter, and car insurance. We hope to pass on our savings habits to both of them so they too can retire in their 40’s or 50’s if they so choose.
. . . but there’s the problem . . . why did you feel that you had to pick up thetab for your kids’ college? I figured out that the ratio of the minimum wage to a year at the college where I graduated is exactly the same now as it was when I went.
It comes out to about 2200 hours of minimum wage work per year. Now I worked a lot (80-90 hours a week in the Summer) and had a minimum of loans, but it is always possible to work during the year at most schools.
There is no benefit to the kids if they never work for anything.
Thanks for sharing the eye opening post, Sam. These numbers are actually bizarre! But I do believe they are correct. After working in the Canadian financial industry in various customer service roles over the last 5 years, it’s easy to see why these numbers are realistic – there is a complete misconception about money. It seems as though most people don’t care about what they do for work, they just focus on the level of pay. They don’t care about the work, they care about the status of a job and what they can afford to spend their income on – BMW’s, expensive weddings, trips, and constant instant gratification. I see so many people who are 50 plus that are still paying off large debts.
Also, you mentioned how taxes will will eventually increase to accommodate the non-savers. I’m not sure about you but I actually find this to be slightly infuriating… It seems totally unfair for some of us to suffer for others negligence and lack of discipline. Actually, I liked the idea mentioned by one of your other commenters, Alex. He mentioned how Australia forces a 10% savings rate for anyone over 18. Making people save with their own money seems like the most logical explanation to me. Thanks again for sharing!
Hello,
Do what Australia does and legislate that all persons over the age of 18 MUST pay 10% into a retirement account before taxes are deducted and the money hits their bank account.
Easy fix.
I’ve heard similar statistics many times before. It kind of contradicts some other stuff you posted once, about coming windfalls of money that will be passed on to Millenials by their parents. How can the older generations be both woefully unprepared for retirement as well as pass off windfalls to their children?
Something smells fishy in all the data. I blame our massive debt.
I think this poll certainly has validity. I know many people from millennials to boomers who have NOTHING saved for retirement. Some plan to live off of Social Security, some plan to work til they die, but for the most part, they don’t plan at all. It never enters their minds. I think auto 401K enrollment with yearly increases of 1% would be a great idea to help those who don’t plan. Part of the problem is that many jobs don’t offer retirement account participation at all….And other commenters have hit on this, Americans like to spend everything they earn and then some. I would certainly like to see middle school and high school financial literacy classes be a core requirement.
The book Nudge by Richard Thaler and Cass Sunstein has what I think is the best policy solution – setting up automatic enrollment in a 401k plan or what would be considered an opt-out policy. One way or another, we are influencing people’s choices via a default, so why not make the default something that is better for people rather than worse? They site a study that shows that the participation rate is significantly higher using an opt-out approach than it is with an opt-in approach.
A professor I really respected advised all his students to max out our 401k as soon as we enter the work force. At the time I knew nothing about personal finance, but did it because I respected this man, and am forever grateful that he cared enough to push this issue when I was a student and young enough to get the maximum benefit from his advice.
I didn’t read all the comments above me so I’m sure it’s been said, but we’re fools to think the “haves” will not be on the hook for bailing out the “have nots”. The direction the country is moving is away from accountability and towards collectivism. I anticipate one of the following to occur before I retire (currently 34 w/ $250k saved):
– Higher income taxes to cover the increase in SS outlays, which may impact all income level to make up the massive gap
– Taxes on ROTH IRA withdraws
– Taxing 401k withdraws – move from being taxed as income to a set rate (maybe similar to something we see with cap gains)
My hate for taxes saved my bacon. Even after the crash I kept maxing out my 401k to avoid taxes. Going to cash was not a mistake I was going to make after I missed the warning signs of the crash. I was surprised at how many people around me in corporate finance were putting everything on the sidelines.
Finance people tend to follow to many academic books. PE ratio blah blah blah. Sometimes knowing too much works against you. They go to cash at the wrong time, buy at wrong time, etc.
Wikipedia says that consumer spending was 71% of American GDP in 2013 (62% in 1981). That sounds about right, so I’ll go with it.
So, like, would the stock market have gone up as much as it did, if everyone had a significantly higher savings rate?
I think about this a lot.
I believe the overall message of the personal finance blogosphere is a really good one. People should live within their means. They should save aggressively to give themselves and their children a better future. Etc.
At an individual level I firmly believe it’s a good way to live one’s life, and I too want people to get educated about finance (especially friends and family because I care about their well-being).
But what would happen if everybody actually did it?
What if everyone got woke and stopped getting a new car every 3 years, and buying 60″ flatscreen TVs and furniture to fill up their houses that are way too big?
Would the economy collapse?
Don’t we kind of need people to buy a bunch of stupid stuff they can’t afford so that our investments in the companies that sell that stuff can grow at a historical rate of 7-8%?
It makes my head hurt a little, and I feel a little gross thinking that way. But I do wonder what would happen if the PF message were to really gain momentum…
Interesting data.
Do you think it adequately address people with multiple accounts?
For example spouse and I have $2Mil spread across 8 different IRA’s, 401k’s and tax funds earmarked for retirement. Individually, each account is “meh” but in total, we are ok.
How would the study makers know this?
It’s a good question. The data probably doesn’t fully capture the summation, as I have a Rollover IRA, Solo 401k, and SEP-IRA as well.
But, I would guess a small minority of Americans have more than one retirement savings account, given it looks like roughly half of Americans don’t have any retirement accounts.
Would have liked to see an age option for the poll at the bottom as well since that gives a little more info on your demographics here and where I’d fit in as a new-comer to the blog and currently age 27.
But yes, retirement savings are scary… I am doing OK (not great, but not bad) myself according to your previous posts. Looking at my parents though who are 10 years away from retirement….I have more in my retirement account than them. I have no idea how to cope with the very real possibility that I’ll be needing to take care of them in the next 10-20 years