Average Retirement Savings
The average retirement savings is $172,000. Sounds like a lot, but it's not nearly enough. Read on for the current surprising facts and trends.
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Facts And Figures At a Glance
- Nearly 40 million working-age households (45%) do not have any retirement savings.
- The average household with retirement savings has $60,000 saved.
- The average 401(k) balance is $97,700.
- The average IRA balance is $100,200.
- 47% plan to rely on Social Security as their primary retirement income.
- The average Social Security benefit for retired workers is $1,461/month.
Most Americans don't have nearly enough saved for retirement. If you have big plans for retirement, it means sacrificing now. You'll need to exchange instant rewards for a better later life.
Having a plan is the key to success. How much do you need for retirement? We'll help you learn how much to save.
Don't worry if you haven't started yet. While starting early is good, but it's never too late. Read on.
- Average Retirement Savings By Age
- Savings Benchmark Goals By Age
- How Much Do You Need in Retirement?
- How to Save for Retirement
- Can You Count on Social Security?
Average Retirement Savings By Age
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According to a survey done by Transamerica, among those with retirement accounts, here is what the average American has saved so far:
- At age 25: $16,000
- At age 30: $45,000
- At age 40: $63,000
- At age 50: $117,000
- At age 60: $172,000
These numbers are not nearly enough. Most Americans don't feel ready to comfortably retire.
Across all ages, the average person said they feel like need $1 million in order to feel financially secure when they retire. 82% of responders don't plan to retire at age 65. Also, more than 50% plan on working after they retire.
Savings Benchmark Goals by Age
So how much should you be saving? No two people will have the same retirement savings plan. Your personal finances and savings ability will depend on your income, amount of debt, and lifestyle.
Financial experts recommend the below guideline as a basis. Here's how much you should be saving by certain ages:
- By age 30: 1x your annual salary
- By age 40: 3x your annual salary
- By age 50: 6x your annual salary
- By age 55: 7x your annual salary
- By age 60: 8x your annual salary
- By age 67: 10x your annual salary
Don't beat yourself up if you don't meet these benchmarks. It's just a goal to work towards. And if you're behind, it's never too late to start a retirement plan.
We discuss savings strategies below.
How Much Do You Need in Retirement?
The average person needs 70% of their pre-retirement income during retirement. This means if you make $50,000 per year, you'd want to save enough so that you can live on about $35,000 per year during retirement.
The top costs for those in retirement include:
- Property taxes
- Homeowners insurance
- Health care costs
- Utilities and other necessities
- Long term care
Experts advise to withdraw 4% of your savings each year in retirement. This will ensure that you don't ever run out. So if you have $1,000,000 saved, you can withdraw $40,000 each year to live on.
According to the Census Bureau, the median household income was $56,516 in 2015. This means needing an average of $40,000 per year in retirement. Note that this number doesn't account for inflation or life expectancy.How To Save For Retirement
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Now that you have an idea of how much you may need, let's talk about how to save for this.
Aim to live a 80/20 lifestyle: 80% of your income covers your spending and 20% goes to savings/investments.
The 20% savings includes:
- Retirement savings
- Emergency fund savings
- Getting out of debt
We recommend the following retirement savings plan:
- Max out your employer-matched 401K contributions. This is free money, after all. If your employer matches 3%, contribute at least 3% of your income to your 401k.
- Stock your emergency fund until you reach 6-12 months' of expenses saved. Make sure to keep your emergency fund in a savings account with a high annual percentage yield, like one from Discover® Bank.
- Consistently pay off high-interest debt until it's gone.
- Max out your IRA contributions ($6,000 for 2019, $7,000 if you're age 50+). A Roth IRA will allow you to withdraw your funds completely tax-free.
- Increase your savings each decade as you get closer to retirement. If you can manage to max your 401k and IRA contributions, open an individual brokerage account.
Saving 15% of your income may not seem like enough to get you to what you need for retirement. But remember the magic of compound interest. This means your interest earns interest, so your money can grow faster than you think, especially if you start early.
- You can afford to save $500 a month.
- You start saving when you're 30 years old.
- An annual return of 7%.
By the time you're 65 (after 35 years of saving $500/month), you'll have contributed $210,000. Due to compound interest, you'll have just over $913,000 in your account.
To estimate how much you can have, play around with a compound interest calculator.
Can You Count On Social Security?
Sadly, 47% of workers are relying on Social Security to be their primary retirement income. Perhaps this is one of the reasons Americans aren't saving enough.
In 2018, the average retired person received $1,461 per month in Social Security. But this isn't a guarantee of what you would receive. Your benefits depend on your earnings history and age at retirement. For example, not working a full 35 years could decrease your earnings.
We don't recommend relying on Social Security income. The Baby Boomer generation is entering retirement. This could quickly deplete Social Security's reserves. Plus, people are living longer. This has further depleted the SSA's ability to keep up.
Many in their 20s and 30s may never see a dime of Social Security. We'd prefer if you thought of it as a bonus rather than a sure thing.
Can You Retire at Age 40?
Looking at these numbers, it seems impossible to retire at 40. Given the current life expectancy of 79, that's 39 years of retirement income.
Retiring at 40 requires a life of sacrifice. First, you can't have a mortgage. You must own your home outright.
To retire at 40, you can only live on 3% of your retirement portfolio per year. For example, if you have $1 million saved, you should live on only $30,000 per year. That being said, your portfolio must account for inflation and the higher cost of health care as you age.
Bottom Line
We hope you understand the importance of saving for retirement. Even if you don't have the recommended savings described above, every little bit matters. As interest compounds, your money grows. Get out of debt, grow an emergency fund, and save for retirement. Social Security may or may not be there. Consider it a bonus if you get it.
It's a delicate balance between sacrifice and fun. Look at your budget. Do you allot 20% of your income for savings? If not, start figuring out how to make it happen. The earlier you start, the happier you'll be in retirement.
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