There are many paths to happy, financially-secure Golden Years. You simply should be intentional, disciplined and have a well-planned strategy for how you’re going to reach your goal. Sounds easy enough, right?
The truth is that this ideal is different than our nation’s reality. I’m sure you’ve heard some of the scary media reports about how Americans aren’t financially prepared for retirement. Not all of these reports are without merit.
But, just how behind are we? And, are we going down the right track for financial freedom during retirement?
There’s no day like the present, and it’s always good practice to take stock of where you stand along your journey towards your post-career life. Do you have a plan, or are you waiting to plan later?
Let’s see what most Americans are doing to get a feel for the retirement financial landscape. Here are four points on the state of Americans’ savings that may (or may not) surprise you.
1. Americans are leaving free money on the table.
If you have an employer 401(k) plan where your company matches your contributions, are you taking full advantage of this perk? Many folks aren’t – to the tune of $24 billion in unclaimed 401(k) matches.
This data comes from Financial Engines, who report that annually, billions of dollars are left unclaimed. The survey found that the typical employee misses out on about $1,300 from employer matches each year, which could tally up to nearly $43,000 with compounding over 20 years.
Remember, your employer’s match contribution is literally free money for your retirement savings. Consider taking advantage of it to the fullest.
2. One-third of Americans have less than $5,000 saved for retirement.
This statistic comes from a Northwestern Mutual study that found that one in three people in the US has less than $5,000 saved up for retirement. What’s more, 21% of Americans have no retirement savings at all. If this is your situation, it doesn’t seal your fate for a poverty-stricken retirement. But it does mean that you’ll likely need to start saving a larger chunk of your income (because it will have less time to compound). Or it could mean you’ll have to remain in the workforce longer. In the worst-case scenario, it could mean both.
3. The median household retirement savings in the US is $50,000.
Remember, the median is the “middle” value of a set of numbers – it’s different than the average. According to the newest retirement survey from Transamerica, this figure for retirement savings clocks in at $50,000. But, it’s higher for baby boomers, who have a median savings of $66,000. Millennials are at the low end, with $23,000 saved, although they have time to catch up. But so do the rest of us.
4. Nearly half of Americans are just guessing at their retirement budget.
This data also comes from Transamerica’s survey, which found that 46% of us are just guessing at how much we’ll need for retirement. This is not a plan, folks – it’s wishful thinking.
Only 12% had used a retirement calculator or a worksheet to help them get an accurate estimate. Consider using one to estimate your needs as a retiree, like the one here.
The first step in planning is to know how you want your retired years to look. Do you want to travel the world? Spend most days reading and gardening in your current home? Buy a second home on the beach? Your vision of retired life makes all the difference. From this starting point, you can get a sense of how much money you need every month to support your lifestyle, and how much you need to save for retirement.
This vision doesn’t need to be overly detailed because it may change over time. Still, having a sense of what makes you happy when you think about your post-career life is the cornerstone to a successful retirement.
So, don’t just “guesstimate.” My Fill The Gap (FTG) strategy can provide a powerful way to answer these tough questions. And, it contains just three steps: Figure out your income, figure out your monthly spending, and then fill the gap with retirement savings and income streams. Learn even more about this planning strategy here.
Now, time for some good(ish) news from the Employee Benefit Research Institute (EBRI). The ERBI has the goal of measuring retirement security, a.k.a. retirement income adequacy. They have worked to form the EBRI Retirement Security Projection Model (RSPM) for data reporting. For 2019, here’s what they have found so far:
- For 2019, 40.6 percent of all US households where the head of the household is between 35 and 64, are projected to run short of money in retirement. This number is down by 1.7 percentage points versus 2014.
- The aggregate retirement deficit American households in this age group face, taking into account current Social Security retirement benefits, is currently estimated to be $3.83 trillion. The similar figure (adjusted for inflation) from 2014 was $4.44 trillion.
- The proportional reductions to Social Security retirement benefits are assumed to begin in 2034, when the aggregate retirement deficit will increase by 6% to $4.06 trillion.
Okay, so the above statistics about Americans’ retirement savings are dire, but you can beat the odds. Work towards your individual goal by creating a solid retirement plan, diligently saving, and taking advantage of any employer 401(k) match that’s available.
And, the research for my book, You Can Retire Sooner Than You Think, found some good news about retirement saving. The happiest retirees weren’t necessarily the ones that had millions piled in their bank accounts – these happy folks had an attainable $500,000 stashed away.
Remember, we’re aiming for progress, not perfection. Make your start or keep plugging away at the plan you already have in place. Through prudence and patience, you can get to your own, financially-secure happy retirement.