A scary stat about retirement in America

Published:  01/04/2020

An article from The Atlantic on life without retirement included a scary fact about retirement in America.   

"... the median savings in a 401(k) plan for people between the ages of 55 and 64 is currently just $15,000, according to the National Institute on Retirement Security, a nonprofit."

This is a shocking statistic because:

  1. These are older workers, so they have had many years to save for retirement. You can probably safely assume the median is lower for younger workers.
  2. Not every worker has access to a 401k plan at work and not everyone with access participates. In general, older, more educated workers are more likely to have access to and take advantage of 401k plans. This means the $15,000 median might be higher than the median retirement savings overall for Americans in this age group.

Since $15,000 is the median savings for this group, half have less than or equal to $15,000 saved for their retirement. That's obviously not enough money. However, what about the group of savers in the upper half of the distribution? Half have less than $15,000, but what about the rest? The Census Bureau reports the average 401k balance for those over 65 to be around $200,000. A nest egg of $200,000, does not go very far in retirement. Also, remember that the average is likely skewed higher than what is truly typical for those investors because a small number of well-off individuals with very large 401k balances can cause the average to inflate to a number that isn't representative of typical.

What can these workers do? As the saying goes, the best time to plant a tree is 20 years ago, the next best time is today. Likewise with savings, the best thing to do is to start right away. First, scale down your living expenses as low as possible while still working. This has two benefits:

  1. you will have more money available for savings and
  2. you'll need to save less to maintain your new spartan lifestyle in retirement. 

If you're a younger worker, the same advice applies. Find a lifestyle that will allow you to save a large amount of your take-home pay. Forget the usual advice to save between 10% to 20% of your income. If you save 30% of your take-home pay, it will likely take 30 years to save enough for retirement (assuming you have no student loan debt when you start working). Many young people today start their careers between 30 years old and 35 years old and with considerable amounts of student loan debt, so a 30% savings rate seems like a more reasonable rate for workers that want to retire with enough vitality to enjoy life after work.