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Do We Have a Retirement Saving Crisis?

{ 104 comments }

retirement saving crisisDo we have a retirement saving crisis? The retirement financial guys certainly think so. The National Institute on Retirement Security’s ongoing research* shows that we are in bad shape collectively. There hasn’t been much improvement even after a long period of economic stability. Retirement saving is still dangerously low especially for almost everyone. 90% of the households with higher income have retirement account, but the median balance is still pretty low. Let’s take a look at the data.

*I originally wrote this article in 2013. I’m updating this post with the 2015 report.

From this data, it looks like we’re officially in crisis mode. The near retirement households are going to be in serious trouble after they retired. The median retirement account balance for people 55-64 (who has retirement accounts) is $104,000. That might sound like a lot of money, but it could be gone in just a few years. What about those folks without retirement accounts? Their median balance is just $14,500. That’s up from $12,000 in the previous report, but it’s not even close to being enough for one year of retirement.  If you have only $14,500 saved up at 65, then you are going to be in for a very long frugal retirement. Those households will be dependent on Social Security benefits and other public programs. One little emergency can screw up their finance and push them over the brink.

It’s a tough situation for the working class. When you’re not making a lot of money, saving for retirement is put on the back burner. I remember when my family immigrated to the US. My parents barely made enough money to pay the bills and they couldn’t save any money for a long time. Today, they don’t have a lot of retirement saving, but their expense is very low so it’s not too bad. My dad lives in Thailand and has some income from renting out his condos. He spends about $1,000 per month and live a comfortable lifestyle there. My mom lives with us and she doesn’t spend any money. Her biggest cost is healthcare, but it’s not too bad at this point.

The key research findings are as follows: (from NIRS’s website)

  • Account ownership rates are closely correlated with income and wealth. Nearly 40 million working-age households (45 percent) do not own any retirement account assets, whether in an employer-sponsored 401(k) type plan or an IRA. Households that do own retirement accounts have significantly higher income and wealth than households that do not own a retirement account.
  • The average working household has virtually no retirement savings. When all households are included— not just households with retirement accounts—the median retirement account balance is $2,500 for all working-age households and $14,500 for near-retirement households. 62% of working households age 55-64 with at least one earner have retirement savings less than one times their annual income, which is far below what they will need to maintain their standard of living in retirement.
  • Even after counting households’ entire net worth—a generous measure of retirement savings—two thirds (66 percent) of working families fall short of conservative retirement savings targets for their age and income based on working until age 67. Due to a long-term trend toward income and wealth inequality that only worsened during the recent economic recovery, a large majority of the bottom half of working households cannot meet even a substantially reduced savings target.
  • Public policy can play a critical role in putting all Americans on a path toward a secure retirement by strengthening Social Security, expanding access to low cost, high quality retirement plans, and helping low income workers and families save.

All right, so we see that the average household is doing a terrible job at retirement saving. However, I’m sure that anyone who is reading ossite is way above average. All you need to do is max out your 401k and Roth IRA contribution for a few years and you’ll be way above average for your age range. That’s easy to say, but not everyone can do this.

What if you really can’t save for retirement?

Of course, it would be ideal if you stashed away a million dollars in your retirement account, but many of us can’t do that. I have been saving and investing in my tax-advantaged accounts for 20 years and they are only worth about $600,000. That’s after a very long bull market.

The numbers look bleak, but it’s not hopeless. People all over the world retired with much less than $100,000 saved. Let’s brainstorm and see what alternatives there are for households without a lot of retirement savings.

  • Make money doing something you enjoy – If you can make money doing something that you enjoy, then you probably don’t need as much retirement saving. You can keep doing what you like and you’ll have some income to cover the expenses. Ideally, this should be self employment so nobody can fire you. Nobody can work forever, though. Most people have more health issues as they age and eventually they can’t work anymore. Working after retirement is only a short term fix.
  • Build up multiple streams of income – Some people don’t have much money in their retirement accounts, but they have other ways to generate income. Rental properties, dividend stocks, and peer to peer lending are just a few ways to generate some income. There are also many other part time gigs such as house sitting, dog walking, mystery shopping, and blogging that could make some money when you have more time.
  • Cut cost by relocating – This is a great option that most Americans rule out. You can have a great retirement in South America or Southeast Asia with a very modest budget. In fact, I plan to do just this when our kid goes off to college. We can explore new cultures and scenery while saving money. This is 13 years out though so we’ll see if it pans out. Also, many locations within the US is quite inexpensive. If you live in the expensive part of the country, you’ll be able to reduce your cost of living drastically by moving to a cheaper location.
  • Leverage your family – If you can’t count on family, who could you count on? Raise your kids with family values in mind and count on them to help out when you’re older. Combining households is a great way to save money for everyone and it’s also really nice for kids to know their grandparents better. My mom lives with us for 8 months per year and it’s a good situation. She can help babysit occasionally and we can make sure she is healthy. Our kid also knows that we are taking care of her and expects him to do the same for us if needed. Hopefully not, but you never know.

So yes, we do have a retirement saving crisis on our hands. If you’re young, you need to start saving now. The earlier you start investing, the better off you’ll be in the future. You can be even more ambitious and shoot for financial independence. Trust me, life is much better after you’ve achieved FI. If you’re close to retirement and haven’t saved enough, then you will have to be flexible and think creatively. Depending solely on Social Security benefit will be a tough way to live. I’m sure most people can’t maintain their lifestyle with just the Social Security check.

What would you do if you’re 65 with only $14,500 saved? 

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{ 104 comments… add one }
  • [email protected] August 19, 2013, 5:46 am

    I know so many people who just say that they’re going to “work until they die.” Some of these people are older, in their 50’s, and others are my age- in their mid 30’s. I have one friend who actually believes that the world is going to end before retirement so she uses that as an excuse to skip her work’s 401K plan!

    • retirebyforty August 19, 2013, 9:12 am

      That’s crazy. They should get together with older folks (65+) and see how they feel about working until they die.
      Situation changes and we need to be prepared.

  • The Warrior August 19, 2013, 5:51 am

    If this doesn’t slap all of us across the face and bring us to reality, what truly will. The sad part is that even if we completely doubled these averages, it would still be practically nothing.

    Now, I can’t go out and completely fingerpoint myself. We are far behind where we need to be but we are on a path.

    This scares the hell out of me because this is exactly the position my parents have found themselves in. I have no idea what they are going to do in the next few years and unfortunately, I don’t think they know either.

    The Warrior
    NetWorthWarrior.com

    • retirebyforty August 19, 2013, 9:13 am

      I hope you get caught up soon. At least you realize you need to save. It’s a tough situation to have very little money when you’re old.

      • The Warrior August 19, 2013, 10:46 am

        It’s all a work in progress. I definitely am in a better position mentally these days than my early 20’s.

        I’ve learned that it’s not a battle unless you make it such. I work WITH my finances to try and grow them.

        On our way…. 😉

        The Warrior
        NetWorthWarrior.com

  • cj August 19, 2013, 5:55 am

    RB40! Love the first bullet point regarding what we’d do with only $12,000 at 65. Tammy and I have cultivated several interests over the years that we could enjoy in retirement and make some money. Sure, we will have our fair share of R&R, but doing what we love and what we are good at to make money after 65 will hopefully keep us feeling a little younger;)

    • retirebyforty August 19, 2013, 9:14 am

      That’s at the forefront of my plan too. It’s better to have an active retirement and make a little money working on something you like.

  • Mom @ Three is Plenty August 19, 2013, 6:22 am

    If I only had $12,000 saved, we’d make it 2-3 months with our current expenses, 5-6 months if we weren’t paying our mortgage. I don’t think that many people even think about retirement until they are almost there. Others still have the expectation that “the company will take care of me”. I have many family members who are “blue collar” workers in the steel industry – they’re expecting the union to keep their pensions going so that they can retire – not a single one of them has a direct contribution account.

    Also, it’s hard to encourage someone barely surviving on what they’re making to put some of it aside for later – many need it “now”, and will deal with “later” when it comes.

    • retirebyforty August 19, 2013, 9:16 am

      I think most people just deal with the reduced budget and live a much more modest lifestyle. They just have to do it when they have no choice. Pension is good, but many of them are running into financial trouble. They need to have some kind of back up plan…

  • JT August 19, 2013, 7:00 am

    I simply won’t be in the boat of only having $12,000 saved for retirement so I haven’t thought about it. Needless to say, I would have to live off social security and whatever else I could do to raise money. Clearly, there is a crisis and people aren’t planning for the future.

    • retirebyforty August 19, 2013, 9:17 am

      I can’t imagine having only $12,000 saved up. That will be gone very quickly no matter how frugal you are. Depending on social security will be tough too for people our age.

  • Jared August 19, 2013, 7:13 am

    These charts are just retirement savings accounts, right? What about non-retirement assets? And Social Security?

    Things look pretty dire, but this is also only one piece of the puzzle.

    • retirebyforty August 19, 2013, 9:18 am

      From what I understand these are saving that are targeted toward retirement. So saving accounts, etc…
      They are not looking at social security. When they use net worth, less people are in trouble, but it’s still pretty bad.

  • No Waste August 19, 2013, 7:33 am

    The simple solution is cost-cutting.

    Your thorough breakdown is exactly why I believe SS and Medicare will ALWAYS be there and fully funded, too.

    The Government recognizes what a crisis it would be to have such a large population of broke and destitute folks living out their years at or near poverty levels.

    • retirebyforty August 19, 2013, 9:20 am

      There are many things that can go wrong with SS. They will probably delay the benefit age at least. I really hope Medicare will always be there too.

  • C. the Romanian August 19, 2013, 8:00 am

    I have one friend who spends everything he owns (he really has absolutely NO money saved on a pretty decent salary) because he claims he’s still young and needs to have fun, that you never know what will happen and if he lives to reach the retirement age he’ll figure something out. That’s his plan and I am sure that many people think like this, without knowing that “I’ll figure something out” is similar to “I’m doomed”.

    Personally, I am not that much into saving for retirement either but you have to be ready. You never know if you’re about to become the world’s oldest person alive and in that case you really need a good sum saved up!

    • retirebyforty August 19, 2013, 9:21 am

      I hope your friend wake up soon and not when he’s 60. It’ll be even more difficult to save when you’re used to an extravagant lifestyle.

  • Mr. Utopia @ Personal Finance Utopia August 19, 2013, 8:31 am

    I think it’s not only the fact that some households don’t make enough to save for retirement, but also a mindset that some folks just don’t think or worry about it. In other words, “out of sight, out of mind.” They’ve got their current day problems to deal with and they’ll cross the retirement bridge when they get there. Also, not to get political here, but maybe people have the expectations that they’ll be taken care of when they get to retirement…sort of the welfare nation thought process.

    • retirebyforty August 19, 2013, 9:23 am

      I think you’re right. People just don’t plan ahead very well. Those people are in for a rude awakening. Social security payments are pretty low and it’s just enough for the necessities. It’ll be tough to maintain their lifestyle with SS alone.

  • Corey August 19, 2013, 9:04 am

    WOW! I guess a lot of people are going to be working an extra 20-30 years. I’m hoping to have more than $100k in my retirement accounts as close to age 30 as possible. I can’t imagine being 55-64 and have only 100k for retirement (not to mention 12k). Ouch!

    • retirebyforty August 19, 2013, 9:24 am

      12k is very low. It’s tough for the working class family…

  • Financial Samurai August 19, 2013, 9:22 am

    I just don’t believe these fear mongering charts and statistics. I bet the authors of these statistics are doing WAY better. I bet all of us are doing way better. Sure there are some with only $12,000 at age 65, or $100,000 saved… but they aren’t dying on the streets left and right. They are making things happen. Which means to me there is much more wealth out there than people know.

    • nicoleandmaggie August 19, 2013, 10:26 am

      Well, currently we’re not in crisis because higher earners still have DB pensions and lower earners were always going to have Social Security replace a larger portion of their income anyway. As people with unfunded DC pensions start thinking about retirement, we’re going to start to see a problem, especially as SS benefits will be eroded at the same time because we haven’t been shoring those trust funds up like we should either. On top of that, SSDI and SSI are already starting to see some of the fall-out from this lack of precautionary savings. That’s putting more stress on government systems.

      Most people are going to be working longer than 65. We worry about the ones who can no longer work.

    • Dave August 19, 2013, 11:21 am

      I do believe them, although how accurate they are, I don’t know. I know my sister and her husband who are in their early 30s have basically $0 in their retirement accounts and very little savings, then my parents who are mid 50’s only have about $150K in their 401k……….

      My wife and me probably could live off $12,000 for over a year assuming our mortgages are paid off because we have a rental property and our side income, especially if the kid is grown up and taking care of himself.

      Unfortunately I think more and more people expecting help will increase as more and more jobs become automated, a example, cars and trucks that drive themselves alone will put how many truckers out of a job but on the plus side, we’d have even more free time.

    • retirebyforty August 20, 2013, 11:07 am

      I’m sure all the readers here are doing way better. I’m not sure about the blue collar workers though. It’s difficult when you don’t make much money.

      • awakeinwa January 24, 2014, 3:20 am

        I concur. I took econometrics and economic statistics in uni which immunizes me from such disbelief – too many people conflate the self-selected crowd they hang out with with the general population at large, which is the ultimate mistake to make. Whether it’s your crew or Mitt Romney believing “real Americans” are undercounted by polls, not believing statistics just because is more heat than light.

        One measure that most people without amnesia can agree to is that the average wage is flat for the past two decades, especially when you net out inflation. Income inequality is the singular reason why most families have not had any saving and investing opportunities. Sure if you worked in finance or tech, you didn’t really see it because your pay scale was 100k+; the pay regardless was still flat over time. It’s just the IPO and stock options and deflationary environment (now 1.2%) masked that fact.

        Whether you’re a tech or sweat laborer, the fact of matter is most people have to cut costs hard AND invest aggressively diligently for a safe retirement, especially if you never had 100k+ income levels anytime in your life.

  • Kurt @ Money Counselor August 19, 2013, 11:11 am

    The overall retirement landscape sure does look ominous. If I were 65 and had only $12,000 saved, I’d expect and plan to keep working at something until death or debilitating health problems, and I’d do everything possible to cut my expenses to the absolute minimum. And I’d stay on good terms with my kids. 🙂

    • retirebyforty August 20, 2013, 10:46 am

      Yeah, staying on good term with the kids is the original retirement plan. 🙂

  • MonicaOnMoney August 19, 2013, 11:25 am

    Wow, I’d just keep working if I couldn’t retire. There aren’t many other options except to depend on other for surival.

  • Pretired Nick August 19, 2013, 11:35 am

    What people don’t realize is that the broke baby boomers are going to be such a large political force that this will actually affect everyone. They will be able to vote in large social security and other safety net increases that everyone else will pay for. Once again the baby boomers will be rewarded for their irresponsibility. This has actually already happened to some extent with age increases and other benefit cuts being only allowed for GenXers on down. Look for that to continue.

    • jim August 19, 2013, 11:30 pm

      pretired nick – get a grip. if any group has been screwed with “no more pensions” and reduced medicare and increased medical expenses – it’s been the boomers – not your generation. The boomers put your generation thru school at (mostly) their expense and then let you move back home (again at the boomers expense) until your generation finally figured out that there was nothing beneath your college educated asses about throwing papers or delivering pizzas, which the boomers did in spades to set an example for your oh so spoiled generation. Oh, and then when your generation came running back to mommy & daddy ’cause now you’ve got a baby – ha! It was the grandparents (boomers) who once again footed that bill.

      • Schwamie October 4, 2013, 3:57 pm

        Jim, I hate to say this, but I actually provided a house for my mother while paying my own way through college while working two jobs and ROTC. I had moved out from my family at 20 and joined the military. I have paid for everything myself and did not need “mommy and daddy” to hold my hand. I have poured most of my income into paying off my mortgage (which should be done in the next 2.5 years) and have saved over $200k in my 401k accounts (since I’m not counting on SS or non-existant pensions). I have a resume that covers three pages as I have never been lucky enough to get a job with a company that would keep me for life. I would not call myself “spoiled” and yes, I’m a Gen Xer.

      • Benny @ Stuff That Pig July 13, 2016, 5:27 am

        Jim,
        It sure sounds like you have a chip on your shoulder. I’m not sure what financially competent circle you run in but the majority do not have a million plus in retirement assets even if you include value of primary home. Additionally, the boomers have this coming. You (usually) can’t have a new truck and a new boat and a McMansion in the paved wonderland of Suburbia plus retirement on the average American household’s income. You mention in another comment that you clear ~$150k… I just looked up the stats and you’re double + the median for folks in the 45-54 bracket.

    • jim July 13, 2016, 3:31 pm

      (different Jim here)

      Nick,

      1. There are more millenials than Boomers. So no, Boomers can’t just vote in self serving increases in benefits. Not unless everyone else agrees or fails to vote..
      2. Social Security retirement age increases were inacted in 1983 and anyone born after 1935 has had increased minimum full retirement age. That means all baby boomers and many people older have had higher minimum age. It certainly did not only impact GenX and younger and it was changed long ago.
      3. don’t know what other “benefit cuts” you’re talking about which would only impact GenX or younger

  • John S @ Frugal Rules August 19, 2013, 12:06 pm

    Wow, just wow! I saw this every day in my previous job and it’s sad indeed. It’s easy to say that you’d work til you die (though you really can’t count on that) and I do not want that at all whatsoever. I think I’d start robbing banks if I had only $12k saved at 65!;)

    • retirebyforty August 20, 2013, 10:47 am

      Robbing banks is going to be tough at 65. It’s going to be hard to run away quickly. 🙂

      • BruceP July 19, 2016, 10:16 am

        The idea is to get caught robbing the bank.
        That way you get free room and board. 😉

  • Jamin August 19, 2013, 12:52 pm

    So basically the average person is just trusting Uncle Sam and social security to fund their retirement. Based on the latest SSA stats, the average annual payment is $14,760 per year. Not a comfortable retirement… and not to mention that you are defaulting to the U.S. government’s skill in managing the program.

    That being said, I do agree that this probably drastically vastly overstates the issue to grab headlines. As Sam said above… not a lot of folks are dropping like flies when they retire with “no” savings.

    • retirebyforty August 20, 2013, 10:49 am

      It’s just going to be a very tight retirement if you solely depend on SSA. People just learn to adapt and keep working longer. Doesn’t sound like much fun.

  • [email protected] August 19, 2013, 12:59 pm

    $12K at 65…I’d definitely have to cut costs and continue working if possible. Moving to a low cost of living country might be tough…I understand the benefits but when you have family/friend ties…it is difficult. (Where do you plan on moving to when Mrs. RB40 quits and what about Baby RB40…I guess he’ll be in college right?). I like the leveraging family idea…I’m Asian and that is something that is culturally different with Americans where they don’t live together to save on costs. Well I don’t do the whole living together thing now but we lived with extended family growing up. And yes, I do help out my parents…hey, they made plenty of sacrifices raising me…I have an obligation!

    • bill August 20, 2013, 9:44 am

      Not really an obligation. You didn’t ask to be brought into this world. Your first priority should be to your family

      • [email protected] August 20, 2013, 11:23 am

        You’re right. Yea I could have used a better word than obligation, and my parents don’t necessarily ask for financial help. However, they made a lot of sacrifices as immigrants to provide a better life for their children. They continue to live frugally and I like to help them out a little because I think they deserve it.

        • Savvy Financial Latina February 2, 2014, 2:25 pm

          I’m with Andrew on this. My parents were immigrants to this country and they made a lot of sacrifices. I try to help where I can, and I’m hoping I can help my mom more in the future, as we become more financially secure.

    • retirebyforty August 20, 2013, 10:51 am

      I want to live in Thailand for a few years, then South America for a few years. Maybe Chile or some place nice that doesn’t cost too much.

      • Rene January 2, 2014, 1:00 pm

        Sorry, but you cannnot just start living where you want. There are immigration laws in those countries, you know…

        • retirebyforty January 3, 2014, 9:00 am

          It’s easy to live on tourist visa. Most countries allow you to stay for 3 months and some countries have retirement visa.

  • Mike August 19, 2013, 1:17 pm

    Pretty scary numbers, and means even more to me since I watched my parents struggle through retirement after years of NOT saving. I saw first hand how difficult life can be when you are elderly with few financial resources. Their issue was they lived a lifestyle they couldn’t really afford when they were working and never saved for retirement. We all need to think about tomorrow, because tomorrow WILL come.

    • retirebyforty August 20, 2013, 10:54 am

      Sorry to hear that. It must have been a big adjustment for them. That’s why it’s better to live a little modest lifestyle now so it’ll be an easier adjustment later. Thanks for sharing.

  • Done by Forty August 19, 2013, 1:26 pm

    This post kind of breaks my heart, a little. I see so little saved and while things might ultimately not be that dire, it hurts to know how unprepared my neighbors and friends really might be.

    Still, I imagine a lot of these households might have cable tv, cell phones, etc. If the median household income is $50k, I’d like to think the problem (for some/most) might not be income so much as what we choose to spend it on.

    • retirebyforty August 20, 2013, 10:56 am

      I agree for the most part. There are just so many things to spend money on these days.

  • Bryce @ Save and Conquer August 19, 2013, 3:00 pm

    There is still a culture of not talking about one’s finances in the US. People who don’t have enough saved are probably worried, but they go on about their lives the way they always have. People who do have enough saved for retirement typically don’t talk about their finances for fear of being perceived as snobs, or perhaps out of fear of being hit up by their non-saver friends and family.

  • Dividend Mantra August 19, 2013, 6:54 pm

    Joe,

    Great post here.

    You know what they say about statistics, but I still like seeing charts like this. It gives me motivation to keep living below my means, saving and investing the surplus so that I don’t end up in a bad situation like so many other people find themselves in. Not to point fingers, but I do believe that a lot of situations like this are self created. Certainly before I changed my entire life a few years ago I was on the path to $0 in retirement savings. I didn’t have a dime put away for retirement and had a negative net worth just three years ago. Now I’ve got six-figures. You have to want it.

    It takes hard work and a desire to want more out of your life once you’re no longer working for a living. And those people who think they’re going to ‘work until they die’ are likely to be sorely disappointed, as one’s health and ability to keep grinding away can be compromised at any time.

    Tomorrow isn’t promised, but if tomorrow does come I plan to be in a great spot financially. 🙂

    • retirebyforty August 20, 2013, 10:59 am

      Thanks for sharing! I think it’s a combination of many factors. A whole bunch of people like spending all their money. A lot of people are not making much and spend all they earn on bills. These all add up to a huge % of people having so little retirement saving. It’s sad.

  • jim August 19, 2013, 11:12 pm

    Oh come on guys – you don’t seriously believe that most people in their late 50’s/60’s only have $12,ooo saved for their retirement do you? I’m calling the b.s. flag. I’m in my mid 50’s – raised and educated 2 kids on our dime, paid for ones wedding and helped with their down payment on their first house, helped tremendously with their little ones’ expenses and are now helping our youngest some with law school). These kids were raised debt-free and they learned how to live that way from their “boomer” parents’ examples. Currently, we’ve got over $1M in assets. By the time we retire in 5-10 years, we’ll be well over the $2M mark – with no debt in the world (other than gratuitously helping our youngest pay off some (minor) law school loans). We’re going to give that to him in lieu of an expensive wedding. We are not the exception – everyone we know is in about the same condition as we are and we only make (jointly) about $150,000 gross – our highest income. Most, if not all, of our friends are in the same, or better, position than we are. I’m throwing down the b.s. flag.

    • retirebyforty August 20, 2013, 11:03 am

      Really? Why would they lie to us? I think you are in the circle of the haves.
      All your friends are in similar positions and it might seem like everyone is doing well. The working class out there are in big trouble. You just don’t know them.
      It’s great that you are doing well though. Great job!

    • jim August 20, 2013, 12:48 pm

      You have $1M and make $150k and apparently everyone you know is in a similar situation?

      Most people are not millionaires. Most people do not have 6 figure incomes.

      If you think that your situation is typical or common you’re very mistaken.

  • [email protected] August 20, 2013, 1:59 am

    Joe,
    Although the facts are scary and I do believe Americans don’t save enough that study is funded by the NIRS which is funded by the teacher’s and public sector unions. They want fear mongering because they want everyone to have pensions, so that people don’t get pissed at their benefits.
    Let’s say it is true much like Fidelity’s retirement survey it shows Median balance per household. That is what is saved in one account, it doesn’t factor in multiple accounts. The average person will change jobs 10-15 times, if they saved a little in each account that is multiple accounts that are not considered. You also got home equity and social security, people will be OK.

    • retirebyforty August 20, 2013, 11:04 am

      Ahh… Thanks for the info. I think people will be ok too. They just have to learn to adjust their lifestyle after retirement. That’s a good point about justifying their pension.

  • Little House August 20, 2013, 6:53 am

    Many people close to “retirement” won’t be able to retire with such low retirement savings and that’s just the reality. I can’t say that I’m a whole lot better off, but I do have a pension plan and something small started outside of that. And, I know for sure that I’ll be working past the age of 65, probably more like 70. But, hey, by that time the average life expectancy might be pushing 90 and that still gives me 20 years of retirement!

    • retirebyforty August 20, 2013, 11:05 am

      I’ll probably be working longer too, but hopefully it’ll be and easy and enjoyable self employment assignment. 🙂

  • wallet engineer #1 August 20, 2013, 10:11 am

    Looks like an astounding amount of people need to take responsibility for their financial choices.

  • jim August 20, 2013, 12:37 pm

    Americans can certainly stand to save more for retirement, thats for sure.

    From SCF 2010 : 60% of people 55-64 have retirement accounts. So that means 40% of people do not have a retirement account . The median value for people who DO have accounts is $100k. Then they cite the median value for all families at $12k but that includes the 40% who have no accounts. So what they’re saying is that 40% of people have no account and 10% of people have accounts with under $12k and 50% of people have accounts over $12k. We also know that 30% of people have over $100k.

    So that gives us :
    no accounts = 40%
    under $12k = 10%
    between $12k and $100k = 20%
    over $100k = 30%

    Having 40% of people with no accounts may seem like a problem but this doesn’t consider other assets. These are only retirement accounts and do not include cash, stocks, business ownership, etc. It also doesn’t consider people who have pensions. Retirement accounts are cash balance accounts liek IRA’s and 401ks. A significant amount of people do still have traditional defined benefit pensions. 20% of the entire population is covered by a pension. If you look at people age 65 and over about 30% are currently receiving a pension check. I think its safe to assume that the people age 55-64 are closer to 30% than 20%. That would explain a lot of the 40% of that group who doesn’t have retirement savings.

  • Squirrelers August 20, 2013, 7:05 pm

    People simply can’t work until they’re super old. It’s wishful thinking and dangerous thinking. Either health will get in the way or you won’t be employable. Sure, there are those rare exceptions we can all point to. But those people who do work late into life are exceptions, not the rule.

    Thus, I do think it’s safe to say that we are in a big problem when it comes to retirement in this country! At old age, with only $12k, the only thing I can think of doing would be to get help from my kids. That wouldn’t be a desired course of action, both as a matter of pride as well as not wanting to burden their lives.

    • retirebyforty August 20, 2013, 11:56 pm

      Health will definitely get in the way. I also think most people get tired of working in the same career for a long time. You might love your job now, but you probably won’t love it forever.

      • Mr. Tako @ Mr. Tako Escapes July 13, 2016, 10:04 am

        I think a lot of these people who think they’ll work until death have no idea what it’s like to be old. People might save more if they realized all that youthful energy goes away and leaves aches and pains behind.

        There’s also age discrimination. Many companies aren’t looking for slow moving slow thinking older workers. It’s not legal to discriminate, but it’s still done. Finding work when you get older is harder!

  • Financial Independence August 22, 2013, 2:20 am

    Here in Australia we have a retirement savings account (superannuation) which is compulsory for employers to contribute 9.25% of gross income to on behalf of employees. While you’d think this is a good thing, it means that way too many people are complacent about their retirement – assuming that superannuation will cover it.

    Of course 9.25% per year for 40 years of working is only about 4 years worth of wages – consider 5% compounding growth on average and you’re up to about 10 years of your average salary. Tough luck if you live much longer than that!

  • Gina August 23, 2013, 4:01 am

    I am dealing with this with my mother. She is 70 and no savings. She was just diagnosed with auto immune disorder that leaves her unable to work. She was going to work until she died. That was her plan. Throw in the fact that she supports two sons
    that she enables.. she has a mess. Neither son works. She will be going to a nursing home that Medicaid pay for. The not nice home. She was already in bankruptcy, payment coming out of paycheck. One brother was/is a drug addict, so we refused to give her money, he would just take it.

    My husband and I are benefiting from my obsession with retirement planning.
    We are in our 40’s and have 1/3 of our planned goal saved. I just took on an extra job to save even more. It is our priority.

    • retirebyforty August 23, 2013, 9:51 am

      I’m so sorry it’s such a mess. At least you are doing well. It’s good that you isolated your finance from the mess too.
      Working until you die is a bad idea. You never know what’s going to happen.

  • Savvy Financial Latina February 2, 2014, 2:29 pm

    I’m making sure we save for our retirement. Want to start early. I will have to help my parents out with retirement. They have no retirement plan. Very typical of immigrants. I’m very much hoping my brother and I will share the cost. So I’m pushing my brother to excel academically and work hard.

  • Apathy Ends July 13, 2016, 4:37 am

    14,500 is embarrassingly low!

    That would cover about 3 months of our current expenses (counting mortgage and debt payments)

    I often wonder what people are planning on doing when they approach retirement with that amount of money – are they assuming social security will cover their costs?

    • retirebyforty July 13, 2016, 3:26 pm

      From what I hear, most people will continue to work after 65, but that’s not really realistic. You can do that for a while, but you’ll have to cut back at some point. Depending on Social Security isn’t a good option because that’s not enough money for most people.

  • Marc @ Rusty Savings July 13, 2016, 5:01 am

    Seeing these numbers a few years ago actually deterred me from saving more in my 403b. I saw that most older people had very little savings, but they all seemed to be doing okay. It’s hard to say how people get by with most of us having little savings, but they do. Most all of them do, and as Financial Samurai said, we aren’t seeing old retired people on the streets all over America.

    That being said, I’ve changed my tune now. I don’t want to have to rely on social programs to keep me comfortable during retirement. My family is privileged enough that we should be able to easily save enough to support ourselves. Because of that, I think we are obligated to do so. That way the programs that are intended to help those who really need it aren’t wasted on those who don’t.

    • retirebyforty July 13, 2016, 3:30 pm

      Really? Older people who depends on SSC have a pretty tough time. A lot of them depends on other social services like free lunches and food banks too. That’s okay, but I’d like to avoid that if possible. I think elderly services in Portland is pretty good. They help poor older folks find subsidize housing and figure out healthcare. I wouldn’t say it’s a comfortable living, but you just have to make do with what you have. Not sure if this level of services can be sustain if the population of poor older folks shoot up.
      Good luck!

  • The Green Swan July 13, 2016, 5:07 am

    Thanks for pulling this post forward, RB40. I guess it goes to show why government programs such as social security and medicare are around. Too many people left to their own devices are not responsible enough to take care of their own retirement needs. So having them pay into these programs along the way helps. If only they were run more responsibly by the government so they are adequately funded…

    • retirebyforty July 13, 2016, 3:33 pm

      Social Security is a great program. The congress needs to reform it soon, though. We just don’t have a culture of saving here in the US. The 401k program is a failure for a lot of people.

  • Pia @ Mama Hustle July 13, 2016, 5:47 am

    Yikes! Wednesday morning wake-up call. This is probably the first time I thought my retirement savings looked somewhat healthy. Putting away 10% is definitely better than putting away no percent!

    I wonder what’s going to happen with social security. I’m pretty sure I’m not the only millennial not planning on it being around until I retire, but there are plenty of people retiring in the meantime who are counting on it.

    • retirebyforty July 13, 2016, 3:35 pm

      10% is a lot higher than average. More would be better, of course. 🙂
      It seems most millennials aren’t planning on Social Security, but I think that’s wrong. Social Security will be around in one form or another. It will get reform. The age will probably be pushed back.

  • Frugal Familia July 13, 2016, 5:52 am

    I sometimes wonder if people are really this stupid or they just don’t care. It’s scary because the next generation is destined to learn these same immediate self gratifying behaviors from their parents and think of them as acceptable.

    • retirebyforty July 13, 2016, 3:36 pm

      Ouch… The truth hurts… We really need more financial education in school.

  • Felipe July 13, 2016, 6:09 am

    These are sad stories, but I do believe them. My sister at 60, though brilliant and well educated and never lived extravagantly, has nothing. Tech industry ups and downs, some poor investments. Nothing really her fault but it’s very hard for her now and she’s scared for the future. Some others made poor choices – RV’s, not saying “no” to the grown up kids, constant refinancing and getting cash out. But so much of the system seems rigged against common investors it’s easy to see why people don’t feel it’s worth it to save in stocks. Nice post. Thanks!

    • retirebyforty July 13, 2016, 3:38 pm

      I’m sorry to hear about your sister. It’s scary because so much luck is involved. You need to invest consistently for many years to build up a comfortable retirement fund.

  • Aaron @IncomeHoncho July 13, 2016, 6:50 am

    I would love to move to Asia and retire right now on a modest income. But that means sacrificing everything I have here such as friends and families so it’s a tough decision.

    • retirebyforty July 13, 2016, 3:39 pm

      That’s a big change. We plan to travel for a few years and then move back to the US half time. I think that’s a good compromise, but it might be hard on the budget.

  • Mike H. July 13, 2016, 7:10 am

    We absolutely have a retirement savings crisis. I worked in the retirement industry for years, and as a general rule, the closer someone is to retirement today, the worse of they are. Why? These are the “transition” folks, the ones who started their careers with the expectation (or promise) of a pension…and lost it, sometimes by choice, most times not. From the population I administered, the average age 60+ account balance was about $115k, or maybe three years’ of expenses in a good market. Most people ignore retirement finances until about 10 years prior to their chosen retirement date. In the 401k-based world we now live in, that’s almost as bad as never looking at their finances at all.

    My prediction is that there will eventually be a relatively small social crisis with the older generation not wanting to retire (thereby disrupting the normal workforce turnover for several years), and a much larger financial crisis with either 1) widespread poverty among the elderly, 2) massive expansion of financial assistance programs, or 3) severely depressed consumer spending countrywide as middle-aged middle-income workers accept the financial responsibility of caring for their parents. There are potentially large macro-economic consequences of having an entire generation heading toward financial disaster…

    • freebird July 13, 2016, 8:11 am

      I guess I’m a bit more optimistic on this front. With the improvements in health over the past few decades and expansion in high productivity jobs that are not incompatible with the limitations of advanced age, I expect that most of those who want to continue to work past traditional full retirement age will have the opportunity to do so. As the labor market tightens arbitrary age discrimination will become less affordable, just like gender discrimination decades ago (I mean participation rate; pay disparities are likely to persist).

      If we consider the alternative ideal case where everyone age 55+ has an ample investment portfolio or pension income, ‘retirement’ would boil down to an unprecedented fraction of the population consuming while not producing. Not realistic if you ask me. This age cohort is huge, and I think the market will find a way to keep these people’s earning and spending same as it ever was. And I believe this ‘elder enabling’ is where the greatest business opportunities will be found going forward.

      • Tolga July 13, 2016, 10:41 am

        I hate to say it, but those who think they can work beyond retirement age are being overly optimistic. Unless these folks are self employed, highly unlikely they will not be put out to pasture early. And if they are caught in a layoff, good luck getting a job after 50 let alone 65.

    • retirebyforty July 13, 2016, 3:42 pm

      Thank you for your observation. Wow, the account balance is very close to the research paper. That’s not much at all.
      I don’t know if older folks can really choose not to retire. They’ll get pushed out of their professional jobs and probably need to take low paying jobs. It’s tough if you haven’t saved up.
      I think #3 is a real possibility. The cost of living is much cheaper when we combine households. Healthcare is the big expense.

  • Mike Drak July 13, 2016, 7:25 am

    I agree that we are facing a retirement crisis. Withe recent increases in longevity the numbers just don’t work anymore and most people will need to continue to work to some degree which is not a bad thing as there are a number of benefits attached to working longer. The key is to stay healthy, find something that you like doing, something less stressful/more flexible that gives you a good reason to get out of bed in the morning with a big smile on your face.

    • retirebyforty July 13, 2016, 3:44 pm

      Working longer is a great option, but I think most near retirement age people over estimate how long they can work. The workplace is harsh on older folks. They might not be able to find something they like…

      • Mike Drak July 14, 2016, 6:05 am

        They can always do what I did and create their own job. It’s nice being your own boss for a change and I can work as long and as hard as I like.
        I believe their are a lot of options available out there if you do the research and have an open mind.

  • BeSmartRich July 13, 2016, 7:40 am

    I wish more people are reading personal finance blogs. I just reached $200K milestone and it only took us 6 years. I expect that within 7-8 years, my family would be able to retire permanently. I will be about 40 years then. It is not really difficult. People need to be exposed to the power of freedom then focus on saving and investing.

    • retirebyforty July 13, 2016, 3:46 pm

      That’s a great milestone. Good luck on your journey. You probably make good income. It would be much more difficult for median wage earners. Also, you’ve only invested in a really awesome bull market. This pace of gain probably won’t continue much longer.

  • David Michael July 13, 2016, 9:37 am

    Another great topic, Joe.
    Here are a few comments based on my 22 years of retirement, and losing my pension (divorce) and our annuity company going bankrupt. Things happens no matter how hard one plans for the future.

    Despite the set-backs, my (second) wife and I have had an incredible retirement. In addition to Social Security of $2200 a month, we work an average of three months a year on a five year plan, meaning every five years we take a break for five years. Just about the time we get tired from play and travel and volunteering, we enter the seasonal work force once again. Very easy to find jobs like Amazon (Fulfilment Centers), Costco, etc. And, new work brings challenges not present in the normal retirement day to the mind and body. Overall we bring in about $3000 a month which covers our expenses based on $1000 housing costs and $2000 for remaining expenses, including international travel. We just returned from a wonderful trip with granddaughter of two weeks in Italy.

    Before that we spent five years teaching overseas followed by seven years of full time RVing in the USA and Canada. Finally, our dividend paying stocks are starting to fill the income gaps, which we started less than five years ago.

    In short, don’t despair if you don’t have a million saved up. We did at one time or another and took big hits along the way to retirement. Life goes on and we creatively came up with solutions. Most people weather the changes…as long as Social Security is with us. It’s more important than anyone can realize.

    • Amy B July 13, 2016, 1:02 pm

      Sounds great David Michael!

  • Sandy July 13, 2016, 12:24 pm

    I think most of the people who think that they are going to be able to work until they are 70 or 80 are in for a very rude awakening. Even if your health holds out, for many the work place becomes much less friendly as you move through your fifties. Younger management often sees older workers as more of a liability than an asset. My husband and I are in our mid-fifties and we are on track to retire by 60. I’m really glad we made the decision that we wanted to do this in our thirties because we really don’t feel like there will be a place for us in our current work places 10-15 years down the road, plus finding a new job at 55+ is a tall order. Maybe we will work somewhere in our sixties, but it will be a choice if we do. I can say without hesitation that the sacrifices we have made along the way to have that choice were worth it.

  • Amy B July 13, 2016, 1:24 pm

    To me retirement at any age is all about freedom of choice, having more time, and less of a schedule.

    The key is don’t be average.

    I believe the numbers are pretty spot on. I have worked with and known so many that fall into the lowest savings category. Most were 60+.

    I think we could benefit as a society to spend more time thinking and planning. I really wonder if many think.

    You can always find an excuse if looking for one.

    The article includes common sense ideas,the basics, such as reduce expenses and increase income.

    I think a big one is paying off the mortgage before retirement. My goal was no mortgage by 40. Now that it is gone, I can easily save 100% of my income. Our monthly expenses are low so we could maintain our standard of living with about half of a social security check not touching savings.

    No mortgage frees up so much savings potential and freedom. I love that if I start to dislike my job then I can move on without the stress of needing the paycheck. Quality of life is more important to me.

    We don’t have any needs or wants to buy. We prefer to spend our money on travel and experiences. We have looked for extra income opportunities for years and worked numerous second jobs that helped us meet our goals. Work doesn’t scare me but being unprepared does.

  • Alex July 13, 2016, 6:57 pm

    I’d like to see these numbers also broken out by household income, as well as age. I work with a lot of people in the top 5-10% income-wise who still complain about how hard it is to save. I’m curious what their numbers look like. The numbers here are skewing way down because there are so many people with low incomes (and it’s no surprise to me that those people are having trouble saving). But I’d really like to know what the average 401k balance is, for example, a 40-year-old with a household income of $150k or $200k. People at that level really shouldn’t have trouble saving, but something tells me I’d weep if I knew the net worth of most of my coworkers and neighbors.

    • Mike H. July 14, 2016, 6:22 am

      Alex, you probably would weep. High-income people live high-income lifestyles, and it’s easy to fall into the “we deserve nice things” trap. I live in a city where it seems like everyone spends as if they make 50% more than they actually do, and I have no clue how they do it, except by cutting their savings. I hear about – or get invited to – trips to Las Vegas, sports gambling, the kind of restaurant dinner parties where it’s basically a competition to spend…

      The good news is that these high-income people CAN turn it around if they so choose. The bad news is that overwhelmingly they choose not to.

    • jim July 14, 2016, 1:36 pm

      The Survey of Consumer Finances 2013 has it broken down by income groups.

      Average value of retirement accounts by income % groups :
      Less than 20 = $15.0k
      20–39.9 = 23.5k
      40–59.9 = 14.5k
      60–79.9 = 18.9k
      80–89.9 = 34.8k
      90–100 = 94.6k

      In other words the top 90-100 of income earners have $94.6k average and the 40-59.9% have just $14.5k.

      That looks odd because its showing that people in the 20-39.9% group have higher average savings than people in the 40-79.9% range. These are only the people who have retirement accounts at all and the % of people who have retirement accounts is much lower for the lower income groups.

      % of people who have any retirement account assets :

      Less than 20 4.6
      20–39.9 15.8
      40–59.9 38.3
      60–79.9 52.6
      80–89.9 69.1
      90–100 79.6

      • jim July 14, 2016, 1:39 pm

        They don’t however break it down by Age AND income. So I can’t look up what a 40 year old making $100k has saved. Just age OR income.

      • jim July 14, 2016, 1:58 pm

        OOPs… The numbers I posted above are for 1992. I was looking at the wrong year. 2013 is much higher :

        percentile incomes / account balances
        Less than 20 = $42.3k
        20–39.9 = 41.7k
        40–59.9 = 71.0k
        60–79.9 = 122.2k
        80–89.9 = 221.9k
        90–100 = 572.0k

        and % of people with retirement accounts :

        Less than 20= 9.0
        20–39.9 =27.7
        40–59.9 =50.9
        60–79.9 =70.5
        80–89.9 =83.4
        90–100 =92.7

  • Alan July 14, 2016, 11:51 am

    I think its very misleading to talk about savings, as I see numbers all over the place in these “surveys.” Does “retirement savings” include non-taxable accounts? Who knows. There is an article in USA Today saying the median retired couple lives on $48,000 a year, and considering the median income in the US is only around $56,000, that isn’t bad at all. Now consider that many retires have a paid-off mortgage, so that $48,000 likely goes further than $56,000 with a mortgage.

    I focus on what steady income after inflation I can achieve and worry less about a savings level. Most retirees today are living fine, no matter what they saved or didn’t save. You may have $3M saved, but if you can only achieve an inflation adjusted income of $20K per year, your not doing well at all.

  • retirebyforty July 28, 2016, 11:09 am

    Stevie Wonders
    In reply to Sandy.

    The Employment Benefit Research Institute’s Retirement Confidence Surveys consistently show that almost half retire before expectations, often due to health or workplace problems. The median retirement age is 62, with about 15% working past 65, 8% past 70. (I’m surprised so many last that long!) The workplace is indeed very unfriendly to older employees, especially in tech. It just kills me when folks say they intend to work into their 70s, despite overwhelming evidence that won’t happen. How many 65+ workers do you see around your workplace now?
    A book (The Essential Retirement Guide) points out that despite increasing longevity, good health isn’t. According to Canadian stats, almost half between 50 and 70 die or incur a disabling, critical, or life threatening illness. (And as I recall, Canadians are healthier than Americans?)
    When I started working, companies routinely pushed those in their sixties out, now it is easily ten years earlier. So I also prepared for this. Which occurred last year by involuntary separation. The job hunt has been as dismal as expected. Although I was planning to bail in a few years, it still rankles to be shoved out using unfair criteria. Which is compounded by the baffling practice of companies promoting kids barely ten years out of college into “senior” positions that used to take much longer to achieve. Their inexperience really shows.

  • Adam Mhrez December 9, 2016, 3:21 am

    This scares the hell out of me because this is exactly the position my parents have found themselves in. I have no idea what they are going to do in the next few years and unfortunately, I don’t think they know either.

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