Skip to comments.8 Depressing Stats About America’s Retirement Savings
Posted on 11/28/2015 6:15:46 AM PST by SeekAndFind
Only a small percentage of Americans are positioning themselves for a smooth transition to retirement.
Based on the composition of the financial media, one may imagine that the bulk of American households are consumed with avoiding psychological investing traps and choosing between the various forms of smart beta.
Unfortunately, however, these “challenges” are only applicable to a small segment of the population that has meaningful financial assets (or a realistic plan to acquire them). Below are eight statistics that better illustrate the status of American retirement savings, pulled from multiple recent studies.
According to a 2015 survey by the Investment Company Institute, only about one-third of U.S. households have any type of IRA. The number of households with an IRA increased by just 0.6 percent annually between 2000 and 2014.
Among households with no IRA, the average decisionmaker is 50 years old, household income is $38,000, and household financial assets total $35,000.
Among the Baby Boomer generation (those age 51 to 69 in 2015), just 38 percent have an IRA. That rate is only slightly higher than Generation X (age 35 to 50; 33 percent) and Millennials (18 to 34; 27 percent).
Americans between the age of 50 and 70.5 are allowed to contribute an extra $1,000 each year to an IRA (for a total of $6,500). In 2014, just 14 percent of those eligible to contribute the extra $1,000 to a traditional IRA did so (16 percent of those eligible contributed the extra $1,000 to a traditional IRA).
According to the Fed’s Economic Well-Being of U.S. Households report released in 2015, 17 percent of Americans have given no thought to financial planning for retirement. About one in eight households has given “a lot” of thought to retirement.
Among households with more than $100,000 in annual income, 10 percent have given no thought to retirement. Among 18 to 29 year olds, 31 percent have given no thought to retirement planning.
More than half of the respondents to the Fed’s survey indicated they had no 401(k), 403(b), or similar defined contribution plan. Nearly 40 percent of those with $100,000 or more in annual household income indicated they had no 401(k).
Among those without a 401(k), reasons for the absence include “unsure of best way to invest money contributed” (15 percent) and “plan to invest but have not yet signed up” (10 percent).
About 45 percent of Americans expect to continue working as a source of income in retirement. Another 25 percent expects a spouse to continue working to provide funds during retirement; 5 percent expect to rely on children or other family.
These percentages are even higher among those age 60 or higher:
A May 2015 report from the Government Accountability Office (GAO) examined the financial resources of investors approaching retirement. The GAO found that about half of households age 55 or older have no retirement savings (some of these households do report a defined benefit plan).
Those that do have “retirement savings” such as an IRA or 401(k) generally can’t expect much from these accounts in retirement:
Among [households] with some retirement savings, the median amount of those savings is about $104,000 for households age 55-64 and $148,000 for households age 65-74, equivalent to an inflation-protected annuity of $310 and $649 per month, respectively.
Social Security is the primary source of income for about half of households age 65 or older.
According to the GAO report, 41 percent of households age 55 to 64 have no retirement savings. Among these households, the median net worth is $21,000 and median non-retirement financial resources are $1,000. Just 22 percent of these households own a house with no debt, and 32 percent have a defined benefit plan through an employer.
Just 9 percent of households in this age bracket reported retirement savings (i.e., IRA and 401(k) assets) of $500,000 or more.
Fidelity reports that nearly half of its account holders make contributions in the 28 days leading up to the April 15 deadline.
While deadline contributions are better than no contributions, these procrastinators leave money on the table by delaying this action.
While the retirement outlook is extremely bleak for many Americans, there are a few data points that are encouraging about the financial situation of the country, according to a Fidelity report.
Michael Johnston is senior analyst for Fund Reference, and also serves as COO of parent company Poseidon Financial. His investment expertise has been featured in The Wall Street Journal, Barronâs, and USA Today, among other publications. He resides in Chicago.
Competition for Walmart Greeter jobs is going to be cutthroat!
Once no longer physically/mentally able to do their work, the end probably isn't very far away anyway. They don't need to save for 35 years of comfort when they don't have much more than 5 years left.
We saved and invested substantially our whole working lives. We avoided unnecessary expenditures while those around us spent every dime they could borrow.
Financially speaking, our retirement is worry free. I just do not regret all the saving and investing in our early years.
I will be retiring in June of 2017 at the age of 55. Wife and I married young (I was 23, she was 22) and have always saved and invested, beginning before we got married. We both saved and invested believing that Social Security WILL NOT EXIST by the time we were old enough to collect it.
We've also lived well under our means. My vehicle is 13 years old. Still runs and looks great, I've no plans on getting rid of it barring an accident or major mechanical breakdown. Wife's vehicle is 9 years old. Same thing. Our modest home was paid for long ago.
We're paying CASH for our oldest son's college education (thankfully he scored an academic scholarship, so we're just paying the room and board.)
The secret to retiring at all, much less retiring at 55 like I am is really simple: Don't plan on Social Security being there when you're ready to retire, and plan accordingly. Live under your means. Use credit WISELY (that means NEVER paying monthly interest on a credit card.)
Pay CASH. Negotiate CASH DISCOUNTS. Have a valuable second "trade" and use that to barter exchanges of services with friends. Example: I fix all my friends computers, electronics and of all things do some really nice antique, furniture and wood restorations. That enables me to barter for plumbing, carpentry and other services with my friends who work in the building trades for repairs.
There are so many other things that can be done to save money and still LIVE VERY WELL that I can probably write a book on them, but if most people get started at an early age using just my advice above, they'll be so much better off when the time comes to just say "the hell with it" and decide to enjoy your life.
One last comment: Obviously, START EARLY! My youngest son saved his first $1,000 by the time he was 9 years old. We told him then if he saved up $1,000 we'd kick in the other $1,500 to open up a retirement investment account for him. He wisely chose to do that --- at 9 years old. We looked at his account just the other day and in just the last 8 years that $2,500 is just over $8,000. We calculated that by the time he's ready to retire at age 65 he'll have just over $640,000 if he does NOTHING but lets that money sit and grow. This of course does not include any 401k or Roth IRA's he'll open up for himself throughout his adult life.
That's the power of the value of money over time. Whether one uses compound interest or an average investment return rate that's powerful.
Parents, if you REALLY want your kids to be better off than you are, teach them about money early and get them started on saving & investing for their own retirement.
You must be my wife and my lost twins.
Wife and I look at all our friends and how they're living so far beyond their means and are thankful we don't live with that kind of stress.
Many of our son's friends families have lost their big homes and had to downsize into homes smaller than ours. All their "toys" like ATV's, boats, fancy cars are gone too. Those were very valuable conversations to have with both our sons. At 19 and 17 they "get it" that financial stability and discipline are big enablers of a stress free life.
I guess that rental income would include rental income received. I derive about $1700 per month from 2 properties acquired cheaply and paid off quick. Depending on individual circumstances, I would advise buying such properties, do some handiman work and use the income into retirement. Often, keeping the “starter home” —even if mortgaged —is a good way to acquire at least one rental property. Looking back on it all, real estate to me is the best way to build not only retirement, but a substantial estate. I wish I had been more aggressive in this investment area.
And what of the many of us “boomers” that were forced by The Obama Recession” to dip into our 401K to pay ever-increasing household bills while unemployed?
Yet, there are clearly 100s of thousands on SS disability.
Oops..”rental” income = “other “ income
Interesting compendium of stats. Thanks for posting.
Even if you’ve been able to accumulate some retirement assets they will be subject to the corrosive effects of taxes, inflation, interest on any outstanding debts, and the occasional need to withdraw money to meet unexpected expenses.
For seniors, chasing yields can be very dangerous but there are still some companies out there with longstanding records of consistently paying reasonably good dividends. This may be a suitable way for some retirees to supplement their incomes, if they can tolerate the fluctuations inherent in stock prices.
While we are comfortable, but not retired, and well beyond retirement years, my wife is not comforted by my comments that should the economy entirely fail, we will all be in the same boat. Her retort is “the government is going to take it all”. We essentially scrimped and saved our entire lives and depending on how you look at it. We are now even more dependent on Government than ever before, to not take what we saved for retirement, and to continue with SS and military retirement payments.
I will admit that is not a comfortable position to be in considering today’s world.
” - - versus those who are saddled with debt is priceless, isn’t it?”
We have a friend our age, he retired by refinancing his home to pay off his debt (I know, he’s still in debt). Then he refinanced it again to get more to spend. Then he bought a new motor home and bragged his payments are $500 per mo.
He can’t sleep nights, very moody, many health issues I think are nerve related.
I hate to rag on him, for he, like so many, have a very self destructive issues. I’ve given him advice about getting counseling, like an alcoholic, he just thinks it does not apply to him.
Yes, it does feel good to be financially secure.
First, lets define retirement.
I am of the opinion that retirement means having enough income so that one can cover their basic living expenses plus medical going into their advanced age. This can be accomplished by a mix of living frugally, income from pensions and from taping savings accounts, or in most cases, a mix of all three.
To that end, my plan is to pay off my current house, sell, move out and away from the city, buy a small plot of land, and build my retirement home. This will be as much as possible, an off grid, self sustaining home with a large enough green house to support food production for my wife and I. Wind and solar for power, geo-thermal for temperature regulation, HD antenna for local channels and possible K or c band satellite for entertainment and information. Since this will be paid for, this brings the monthly cost down to a few hundred dollars for taxes and maintenance.
From there, the two largest remaining expenses will be transportation and medical. For transportation, I am currently learning how to make my own bio-diesel from WVO and algae and ethanol / butanol from sugar beats. I figure chemicals and maintenance on the vehicle will add around another hundred bucks.
The biggest expense appears to be medical insurance. In 8 years, I will be able to retire from my company and as one of their benefits, I will / should be able to purchase insurance from them. This of course assumes many things but it is a reasonable assumption. Anyway, my numbers show that the cost will be in the arena of $1,500 per month.
Now, given all of the above, this is still less than my SS payment. So if we assume SS is going to continue to pay out ... then I am “ok”.
However, I do not feel comfortable with that assumption so I a working towards building a small business (specialty farm) that will provide more than the amount that SS does. I am also contributing to my company’s 401K but I am going to treat that as an emergency fund when I retire and not draw down unless needed.
So if all goes as planned my wife and I should be good and even have some extra during our retirement. Which is still a good 20 years off.
Do you have any idea what the rate of return on your real estate investments are, net after expenses? Just curious.
For those who don’t want to get involved with managing and maintaining properties, REITs may be an alternative. Most REITs pay a healthy yield but the dividends do not get the beneficial tax treatment that qualified dividends do.
Would have been nice if he had included debt load in his charts also. Lot of older people still have mortgages.
I waited for a windfall. And I GOT IT!
I say, if you’ve got cash, spend it, or else inflation or the gibmement will eat it all up.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.