A Shocking Thesis
According to the Schwartz Center for Economic Policy Analysis (SCEPA), the majority of American families nearing retirement have inadequate levels of savings. When we examine the data, there is a substantial amount of truth to this thesis. Even the Highest Earners Don’t Have Enough
The Data
Every three years, the Board of Governors of the Federal Reserve System release a massive amount of information about United States (USA) family finances. This triennial bulletin is called the Survey of Consumer Finances. (SCF) Here is some background on the authors of the survey: the Federal Reserve Governors consist of seven officials (five appointed by the President of the United States) that oversee twelve banking regions in the United States.
In the 2013 release of the SCF, the mean value of retirement accounts for families in the USA was$201,300. It is worth noting that the mean has continued to increase in every survey dating back to 1989. With that said, when focusing on age ranges, those families nearing retirement (age 50-64) have accumulated on average $285,200 in their savings accounts. The average income for these families is listed at $103,291. (SCF 2013) The data collected includes all retirement plan accounts held by United States taxpayers, such as 401(k), 403(b), and IRAs.
Setting Retirement Savings Targets
There are many opinions regarding the appropriate amount to save for one’s retirement. These figures vary widely, with Fidelity Investments suggesting a savings of eight times a retiree’s annual earnings by the time they reach retirement. In their research, Fidelity estimates that this amount, combined with Social Security should replace 85% of pre-retirement earnings.
In a more conservative outcome, consulting firm Aon Hewitt analyzed the retirement resources and needs for 2.2 million employees of 78 large companies in the United States. Their findings suggest that a retiree must save eleven times their annual earnings to make it through retirement. This amount of savings combined with Social Security should replace 85% of pre-retirement earnings. A suggested savings amount between the two targets would be a great start.
One Step Further – Are We On Track?
Citing research from the SCEPA, we realize that the majority of American families have in fact, not saved enough for retirement. Let us focus on the specific age group, ages 50-64. In any way you read the data, the bottom 50% of income earners, the middle 40%, and the top 10% have seemingly not saved enough to maintain the 85% of pre-retirement earnings discussed earlier.
Even The Highest Earners Can Be Affected
With an average income listed at $460,852, even families in the top 10% of earners aged 50-64 may not have saved enough. The mean balance for the top 10% registers at $639,825. Perhaps they have invested in other assets, such as real estate, or non-retirement savings accounts. However, it is clear that if a family earns $250,000 annually, they need at least $2 million saved for retirement. Even with high levels of income, there seems to be a wide deficit to cover, which cannot be replaced by Social Security benefits alone.
Source: Pew Research Center
The Boomerang Generation
If this retirement savings data was not enough to get your attention, the Pew Research Center has determined that for the first time in the modern era, living in a parent’s home is the most common living arrangement for adults age 18-34. The bottom line: it doesn’t hurt to save more, just in case your adult children are part of the 32.1%.
