Unless you're an actuary, you probably have only a vague idea of how much money you will need to retire -- and whether or not you are on the right track. The amount you should be saving each year is a complex calculation, economists say, so there's no real right answer. Still, knowing Americans' average retirement savings by age can help you gauge your progress.
The Economic Policy Institute (EPI), a non-profit, non-partisan think tank specializing in research on the economic situation of low- and middle-income workers, published a revealing report this year called “The State of American Retirement." Using data from the Federal Reserve Board's Survey of Consumer Finances, conducted every three years, the institute arranged the retirement savings statistics by six-year cohorts. The study looks at those age 32 to 61 - the people more likely to be in a position to save for retirement than people in early careers or in retirement.
EPI researchers found retirement wealth increased as a share of personal income between 1989 and 2013, a healthy start. But retirement funds should have increased even more to keep pace with an aging population, prospective Social Security cuts, and longevity risk, the report said.
Do you have a retirement plan?
When you're examining your own retirement prospects, the obvious first question should be: Is your family participating in a retirement plan? In 2013, the EPI found that 57% of all families were, mostly through a defined contribution plan such as an IRA or 401(k).
Of folks age 32 to 37, 51% had retirement savings, as did 61% of those age 56 to 61. If you don't have a retirement account, it's time to join the majority and set up a savings plan.
Average retirement savings
The mean amount of retirement wealth for all families in 2013 was $95,775.93. The EPI analysis broke it down by age range:
- Age 32-37: $31,644
- Age 38-43: $67,270
- Age 44-49: $81,347
- Age 50-55: $124,831
- Age 56-61: $163,577
The mean is found by adding up all the assets and dividing by all of the participants, so it is skewed somewhat by people with very large amounts of assets. The median, which is the point where half of the participants have more and half have less, is lower, at $60,000, though EPI does not report median data by age.
What this means for you
For a realistic assessment of your prospects, the amount of money saved must be compared to the amount of money future retirees in your demographic group will need. There are, however, a lot of unknowns: how long you will live, whether you will need long-term care, what resources will be available from Social Security and Medicaid, and investment returns and inflation rates.
The short answer for whether retirees will have enough money to retire is: Most people need to save more than they have now. The long answer is more complicated.
Americans are becoming more prepared for retirement
The Center for Retirement Research at Boston College calculates the National Retirement Risk Index. It's updated every three years, relying, in part, on the same Federal Reserve data that EPI uses. According to those numbers, 52% of households were at risk of not being able to maintain their pre-retirement income through retirement. That's a marked increase from the 30% that the Boston College analysts calculated for 1989.
People in retirement rely on a number of sources of income: earned income (29% of people over age 65 work at least part time), Social Security, pensions, investment income, and retirement savings. Many of them also receive other sources of income including disability benefits, veterans' benefits, and support from relatives.
Figuring out your retirement savings target
If you want a precise target, Nationwide has a detailed calculator that looks at your current resources and income to determine how much you should save each month to reach your goals. For example, a 32-year-old with $60,000 in gross income should be saving $978 a month if he or she expects to retire in 30 years on 80% of his or her income (given a lot of other factors, such as projected Social Security income and the possible value of a house).
If your employer has a retirement plan, your first step should be to sign up. If you are already signed up, see if you can contribute a little more money to it - even an extra few dollars from every paycheck will add up. If you do not have a retirement plan at work, investigate such alternatives as IRA plans or annuities.
Saving for retirement may seem daunting because of the huge number of variables involved. The most important part is to start. Over time, the rest of the numbers will come into focus and be achievable with the help of strong early habits. A financial advisor can help you take the next steps.