12 Jun Do Americans Have Enough Retirement Savings?
For a large number of baby boomers who are approaching 65 the amount of money they have for retirement is looking bleak. This is according to a 2016 retirement security report from the Government Accountability Office (GOA). In fact, among households age 55 and older, about 29 percent have no defined contribution (DC) or a defined benefit (DB) plan.
A DC plan is retirement savings such as a 401(k), or IRA. A DB plan is a pension sponsored by an employer/union which provides a defined monthly benefit (or lump sum payment) based on an employee’s length of service and earnings history.
Furthermore, about 20% of households, 55 and older, have a pension but no additional retirement savings in place. On the other hand, about 26% have retirement savings but will receive no pension. About 26% of older adults expect to live in retirement from both a DC and a DB plan.
Among those with some retirement savings, the median amount of those savings is about $104,000 for households age 55-64 and $148,000 for households age 65-74. On average people live 20 years after retirement, but financial experts suggest you plan for 30 years. Professionals also suggest you have between 6 and 9 times your pre-retirement income saved in a retirement account. This number may differ if you will receive a pension.
Important Steps to Take
The takeaway message from the GOA report is that a large percentage of Americans are not financially ready for retirement. Experts advise that you will need about 80 percent of your pre-retirement income to continue your current quality of life. The exact amount depends on your individual needs. Some important factors to consider include:
- At what age do you plan to retire?
- Can you participate in an employer’s retirement savings plan, such as a 401(k) plan, or a traditional pension plan?
- Will your spouse or partner retire when you do?
- Where do you plan to live when you retire? Will you downsize, rent, or own your home?
- Do you expect to work part-time?
- Will you have the same medical insurance you had while working? Will your coverage change?
- Do you want to travel or pursue a new hobby that might be costly?
Keep Working to Build Savings. If you are behind in retirement savings continue working to build your savings. In 2019, for people under 50, the allowable amount to contribute to a 401(k) plan is $19,000 Thanks to a catch-up provision, people over 50 can contribute an additional $6,000 for a total of $25,000 savings per year.
Seek Professional Advice. Financial advisors can be costly. For example, the average financial plan costs between $1,000 – 2,000. However, there are other avenues you can explore. Many brokerage firms, banks, and credit unions offer free financial advice if you have an account with the them. In addition, your employer may offer tools to help employees determine how much money they will need in retirement. And a number of retirement online retirement calculators are available including one from global investment management firm T. Rowe Price. https://www3.troweprice.com/ric/ricweb/public/ric.do
Don’t Rely on Social Security. Social Security benefits are considered one element of retirement income, along with a pension and retirement savings. It was intended to supplement a retiree’s income but not replace it. Unfortunately, the Social Security Administration estimates more than a third of people who receive benefits depend on their social security checks for the majority of their income.
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