The average American home spends over $40,000 a year in retirement, but the average Social Security collection per person is only $17,000. How do you plan to make up the difference? If you take the time to contribute to a 401(k) or other retirement account, you can supplement that amount. The average amount of retirement funds saved by households is $95,776. However, this number is not an accurate measurement of the country’s retirement savings.
TL;DR (Too Long; Didn't Read)
According to the Economic Policy Institute, the average household has $95,776 saved for retirement.
The Average Household
Only 60 percent of American workers are saving for retirement, which means the remaining 40 percent are not prepared for their future. When measuring averages of the entire population, both the high investors and those without any investments skew the total results. If you look at the median retirement savings of all American households, the amount is only $5,000. If you examine households that do invest, then that amount jumps up to $60,000.
Of the number of people who are investing, only 10 percent have a strategic plan. With the market showing healthy growth for investors, it is vital to invest now to save for your future. The average person puts about 8 to 9 percent of income into a 401(k), but it's best to aim for 10 to 15 percent, especially if it is matched by your employer. One strategic approach is to begin investing 10 percent and increase that percentage gradually by a percent every one to two years.
How Age Impacts Investments
If you are intending to retire around age 60, keep in mind that you only have 40 or so years of your career to save this money, making it more important than ever to invest sooner rather than later. The total amount invested will generally be higher the older someone is. However, it seems that adults in their 20s make up the highest amount of those investing. Twenty-seven percent of millennials are actively contributing to their retirement, with a median amount of $31,000 saved. It’s best to have one to two years' salary saved by the time you are 30, and with a median salary of $40,000 for millennials, their investments appear to be right on track.
Comparatively, only about 20 percent of adults in their 30s and 40s are investing in their retirement. The median retirement savings for people in their 40s is around $67,000, with most having approximately $81,000 saved by the age of 49. By the age of 40, you should have three to four times your annual salary saved, and by 50, you should have six to seven years' worth of income. The only way to reach your goals of long-term investment earnings is with early savings that are maintained consistently and aggressively.
Your Investment Health
In 2018, the average 401(k) balance increased 13 percent since 2017, and those who have invested in each of the last 10 years have balances showing an increase of up to 23 percent. The key to this kind of growth is consistent investment in retirement whether the market is high or low. If you’re concerned that you’re not saving enough, make sure that your investment is scheduled like a regular monthly bill. If it’s a passive investment, you’ll be more likely to keep saving.
- CNN Money: Are Your Retirement Savings Keeping Pace with the Average American’s?
- CNBC: Here’s How Much the Average American Family Has Saved For Retirement
- How Much Do I Need To Save For Retirement? - Savings, Debt, Inflation
- Synchrony Bank: Median Retirement Savings By Age
- Bankrate: Not Much of a Retirement Saver? This is why you’re feeling FOMO
Heidi Nickerson graduated from Liberty University in 2013 with a Bachelor of Arts in English. She has previous work experience in Financial Aid as a Grants Processor, where she was responsible for reviewing students' FAFSA information against their tax documentation. Prior to that, she worked with an Enrolled Agent to help families and small businesses submit their annual Federal tax returns.