Average Retirement Savings–All Measurements Lead to the Same Conclusion
The “baby boomer” generation are those people 45 and 62 years of age (as of 2008). This generation has saved on the average retirement savings of $38,000, excluding pensions, homes, and social security. However, “baby boomers” with qualified retirement plans has an average retirement savings of $88,000. The $88,000 of average retirement savings will generate an annual retirement income of about $5,000 yearly. Not many people would be satisfied with this level of retirement income. To get an exact amount, based on your age and retirement savings, you can use the retirement income calculator. But there is ample evidence that these retirement plan accounts are mismanaged with approximately half invested in under-earning money market funds rather than long term growth investments. Its clear not many baby boomers will retire rich.
Source: http://chaz11.blogspot.com/2008/05/baby-boomer-retirement-dilemma-how-much.html
Here is additional data on average retirement savings and attitudes. Allstate has conducted a Retirement Reality Check annually. The survey measures Americans’ attitudes toward, and savings for, retirement. In the 2006 version, respondents were asked, “If saving for retirement were like driving on the highway, where would you be?”
By far, the majority of respondents– 48% — said they are “in the middle lane, keeping up.” More confidence was shown by 20%, who said they are “in the fast lane, passing others.” And everyone else was rather timid. “On the on ramp, still getting started” came in at 14%; “in the slow lane, watching others go by,” notched 13%; and “lost and looking for a map” held strong at 5%. Obviously, retirement is one area where many of us are perfectly content thinking of ourselves as average and the average retirement savings sounds to be pretty dismal. The dismal facts mean that most babay boomers will need to annuitize their nest egg and will have nothing to leave to their children (use the fixed annuity calculator for estimates).
It’s estimated that the average projected postretirement income replacement needed among employees of large U.S. employers is 126 percent of final pay, a level only about 19 percent of employees are expected to satisfy, according to a Hewitt Associates report released July 1. If we assume that the average person earns $40,000 annually, they would need about $50,000 in retirement income, requiring an average retirement savings of $833,000 (not taking into account any social security income).
In fact, according to the report, Total Retirement Income at Large Companies: the Real Deal 2008, about 67 percent of the more than 1.8 million employees of 72 large U.S. employers tracked in the study are expected to have accumulated less than 80 percent of their projected needs at age 65. Despite the gloomy projections, the report’s authors concluded that employees can make a big difference in their retirement readiness by making small changes in their savings rates, investing smarter, paying lower fees, and delaying their retirement – all great actions to increase the average retirement savings in America.
I think in particular the last point is what we are going to see more and more of: individuals working well into their 70’s just to pay their bills and survive. Unless savings rates make a big change, average retirement savings by retirement date will be too low.
Source: http://www.typepad.com/t/trackback/89778/31259398
Economist and humorist Ben Stein set out to answer the question, “Why won’t the baby boomers save?” According to Stein, the average baby boomer needs to save about $400,000 to have sufficient interest income to make up the difference between Social Security and what he or she needs for retirement.
Yet the average retirement savings of baby boomers has saved only $50,000—or $110,000 if you
include equity in their homes. He called this a crisis in the making.
Humorously exploring the question of how we got to this point, Stein suggested a number of possible causes for a low average retirement savings. First, he suggested, baby boomers have “always had it too good.”
Never having lived through economic hard times, they lack the discipline to save. He also proposed
a Freudian explanation: the false sense that mommy and daddy—or the government—will always
bail them out if they get in trouble. A third possibility drew on the theories of behavioral psychologist
B.F. Skinner: saving offers no immediate gratification, while spending provides immediate positive reinforcement such as a flat-panel plasma TV set or a new car. The final theory suggested that baby boomers felt compelled “to obey the media consumer spending machine.”
Whatever the cause, Stein concluded, many baby boomers in retirement will have to cut their
standard of living drastically, while others will simply run out of money. The baby boomers may
actually have saved more than the previous generation of Americans, but because fewer of them have DB pension plans, they are worse off. In other words, because baby boomers must save on their own whereas their parents largely had company retirement plans, this generation’s average retirement savings rate is lower.
No matter who you listen to and what statistics are used, the average retirement savings of baby boomers is inadequate.
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Tags: retirement savings, retirement savings statistics, savings rate
October 9th, 2008 at 10:19 pm
I question your stated estimates for post retirement income of 126%.
Most retirees spend less in retirement - Mortgage paid off, clothing and transportation costs have dropped, they no longer contribute to a 401(k)
lower tax bracket.
Most financial professionals estimate the average retiree can get by without much sacrifice on about 75% to 80% of their post retirement income.
That would significantly alter your required savings figures.
August 7th, 2009 at 8:01 am
[...] doesn’t it? Especially when you realize that studies show average Baby Boomer retirement savings range from $38,000 to $88,000, with a mean amount (in 2005, before the economic collapse!) of $49,944. That would put my savings, [...]
August 23rd, 2009 at 1:37 pm
[...] average American has just $88,000 when they retire but we’re not talking about them - we are talking about the retirees we aspire to be - the [...]
November 8th, 2009 at 7:26 pm
I didn’t even begin to start to save for retirement until about 3 years ago when ING offered to put $40.00 in an account if I opened one. I was 48 and now almost 51. I have managed with bascially scrimping to put away close to $20,000.00. I have gotten some refunds be it taxes, stimulus checks, on insurances etc that were larger chunks of money but most of it is a litlte by little. I opened up two other bank accounts and received $250.00 for that. I save $5,00 everyday and a $100.00 every month. I estimate my utilities bills and whatever I over estimate goes in the pot. I got $15.00 for doing a survey. Any extra unplanned money goes in the pot. Any work I do on a Saturday goes into retirement. A little at a time seems almost silly but I think it will matter when I retire. Of course I plan to work until 70, have my house close to being paid off as well as student loan etc. I’m suppose to get almost 1,600 on SSI which I could probably live off of if house and student loan paid. Any extra I save will supplement. So basically get creative on whereever you can save. It seems hopeless to start late with nothing but any amount helps. I would like to share ideas from others on how they may be saving for retirement.
December 14th, 2009 at 3:29 am
I agree people have a very low net worth these days the emphasis seems to be to much on spending. The economic climate is not helping this with many people refinancing their mortgage, this is going to push the retirement age higher and could result in a crisis.
January 23rd, 2010 at 6:42 am
This Retirement Income Calculator surely help me overlook my income sooner when I retire. I will save it, I hate spending which led us to crisis.