Whether by fact or by feeling, the results of this survey show that more than half of Americans are either behind or feel that they are behind on their retirement savings. Plan Sponsors can help those employees in a variety of ways. The first may be to acknowledge that they may be behind.
A new report by TD Ameritrade found that most Americans want to retire by age 67. As we’ve written about before, setting a goal date for retirement is often problematic not only in the end result but also in the process. As we noted when writing about retirement dates and life expectancy, “Hispanics in the United States have a significantly higher life expectancy of 81.8 years, notably higher than Non-Hispanic whites, at 78.5 years and non-Hispanic African-Americans at 74.8 years. That's 6 years of additional retirement life for Hispanics than African-Americans.” That means retiring at 67 for three similarly financially situated employees but of different races may mean different amounts of retirement savings, namely one might need $360,000 more in savings than another. We’ve also noted that “Sponsors may also want to help employees understand that their investments should be calibrated to more than age…. Employees whose work is heavily physical, like those in the warehouse of a company, may have an earlier retirement date than those whose work is sedentary, like those at the front desk. Whether they want to retire at the same age or not may not be as relevant as whether they can retire at the same age.”
And we also noted that the conventional wisdom: “suggests having saved the same amount as your income by age 30, three times by age 50 and five times by 55 and be ready to retire at age 67, on the same lifestyle and expenses. Under this theory, the average American would need to save between eight and ten times their regular income by age 67.”
So, with all those caveats aside, how are Americans doing on these goals? Overall, 32% of Americans have less than $50,000 saved for retirement, 33% have $100 to $500 saved for retirement and 11% have more than $1 million. For those 40 to 49, 41% had less than $50,000 saved, for those 50 to 59, 37% had less than $50,000 saved and for those 60 to 69, 28% had less than $50,000. How did the rest do?
According to that conventional wisdom, by age 50, one should have between three and five times their income saved by age 50 to 55. According to the Census Bureau, as reported in USA Today, the median income in American is $63,000. Putting that statistic with the conventional wisdom, by age 50 to 55, one should have between $189,000 and $315,000.
And, according to the TD Ameritrade survey released in 2020, 32% had saved between $100,000 and $500,000 and another 14% had saved more than that amount. That means that the rest of those aged 50 to 59, roughly, 54% haven’t saved more than $100,000 for retirement. Under the conventional wisdom those folks are between $89,000 and $215,000 behind.
What’s possibly worse news about this survey is that it measured 2,000 U.S. adults ages 40-79 with at least $25,000 in investable assets, which means those without investable assets could be even worse off. And younger generations, according to the survey feel behind already. It found that 66% of Millenials feel behind on retirement savings.
However, that “feeling” of being behind may not be fact. Reports published by the Business Insider from just a few months before the TD Ameritrade survey results were published shows that Millenials are outperforming their GenX friends. They found that A full 45% of Millenials have a retirement account and 33% are actively contributing to it. That sense of feeling behind may be attributable to a shared belief by Millenials that Social Security funds will not be available and that they will have to be fully self-supporting in their retirement. It may also be a shared experience of their parents distress over repeated hits to their retirement accounts in the 2000 to 2010 time period with the double bubble burst of first the internet and then the real estate investment markets tanking.
Whether fact or feeling, the results of this survey show that more than half of Americans are either behind or feel that they are behind on their retirement savings. Plan Sponsors can help those employees in a variety of ways. The first may be to acknowledge that they may be behind. Helping employees acknowledge the severity of the shortfall may be the first step in taking action towards becoming retirement ready for many employees.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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