Retirement is arguably the most talked-about financial topic, and rightly so. Our retirement years can span decades and require sizable assets to take care of all our needs in our non-working years. But the exact amount of those sizable assets we need can be tricky to pinpoint, especially with the glut of contradictory and overwhelming advice that often just leaves us confused.
For example, we are told that we need X amount for a 20-year retirement, or that we should contribute X amount to our 401(k). It sometimes feels impossible to make sense of all this information and know how to apply it to your own unique situation. Is there a way to figure out if you’re on track?
The Numbers Tell The Story
In the 2016 Survey of Consumer Finances (SCF), (1) we get an inside look at the size of retirement savings accounts across varying age groups. Let’s take a look.
The Under-35 Crowd
In families headed by someone under 35 years old, the average household (not individual) retirement savings is $32,500. This may sound like a respectable amount, but the average savings statistic tends to be skewed by outliers (extreme over- or under-achievers). Because of this, the median value is often a more accurate measurement. In this case, the median household savings was just $12,300. Of the families surveyed in this group, only 42% actually have a retirement account.
If You Are Between 35-44...
In families headed by someone between the ages of 35 and 44 years old, 57% have a retirement account, the average household savings is $100,100, and the median household savings is $37,000. People in this age group tend to have higher incomes, but also higher expenses. Many find it difficult to save as much as they should, especially those with kids.
Late 40s To Early 50s
In the 45-to-54-year-old category, incomes are still high and we tend to see a jump in savings. In this group, 60% have a retirement account, the average household savings is $215,000, and the median household savings is $82,600.
Those nearing retirement, aged 55 to 64, don’t seem to be all that ready for their upcoming milestone. According to the SCF, the average household retirement savings in this group is $374,000, with a median of $120,000.
Those Who’ve Reached The Golden Years
The last group, aged 65 to 74, includes many who have already entered retirement and are thus spending more than they’re saving. In this group, about 50% report having a retirement account, the average household savings is $358,400, and the median is $126,000.
How Much Should You Have Saved?
So now that we know what the average person has saved, is it enough? Let’s take a look at how these figures compare to retirement savings milestones recommended by financial experts. According to Fidelity Investments, you can gauge your progress by comparing your retirement savings to your annual salary. (2) They suggest you aim for your retirement savings to be:
- 1x the amount of your salary by age 30
- 3x the amount of your salary by age 40
- 6x the amount of your salary by age 50
- 8x the amount of your salary by age 60
- 10x the amount of your salary by age 67
What Do I Do With This Information?
Whether you are patting yourself on the back or biting your nails after reading these numbers, the fact of the matter is that you won’t be living the same retirement as your peers. Therefore, you need to figure out how your savings compares to the cost of the retirement you desire. There are a plethora of online retirement calculators, but they are often very generic and fail to take into account the various vital factors that will impact your unique personal situation.
The only way to truly have a clear idea of what you’ll need to retire comfortably is to have a financial advisor run a thorough analysis. A professional can utilize their expertise as well as modern technology to more accurately show you different possible retirement outcomes and how to prepare for both the good and the bad.
When you work with us at Setchfield Asset Management, you won’t get a cookie-cutter solution. We employ personalized strategies to simplify your finances and get you on track toward your ideal future. If you feel like you are falling behind and are tired of staying up at night wondering if you will have enough money to retire, easily schedule a no-fee, introductory meeting by emailing me at firstname.lastname@example.org or calling (303) 627-1099.
Steve Setchfield is Chief Investment Strategist at Setchfield Asset Management, an independent financial advisory firm. With almost 30 years of experience, Steve serves his clients by keeping them out of financial trouble in volatile markets, using a low-key, rules-based approach to investing and helping them with every aspect of their financial lives. Steve studied finance at the Metropolitan State University of Denver and spent several years working at Shearson Lehman Brothers and Kemper Securities before founding his own independent firm so he could offer objective, personalized advice and strategies. Steve is a Colorado native and enjoys skiing and other outdoor activities. He spends his free time volunteering for Big Brothers/Big Sisters of Colorado and coaching wrestling in the Cherry Creek school system. In 2003, Steve was a living kidney donor for his uncle who suffered from polycystic kidney disease. To learn more about Steve, connect with him on LinkedIn.
*Retirement savings factors are hypothetical illustrations, do not reflect actual investments, results, or actual lifetime income and are not guarantees of future results. Targets do not take into consideration the specific situation of any particular user, the composition of any particular account, or any particular investment or investment strategy. Individual users may need to save more or less than the savings target displayed depending on their inputs retirement age, life expectancy, market conditions, desired retirement lifestyle, and other factors.