Retirement savings in America are falling short according to the Federal Reserve's 2022 Survey of Consumer Finances which found that the median value of retirement accounts amongst Americans was a mere $86,900. Of all American families, only 54.4% had retirement accounts that year.
When you break it down by generation, you see large differences. The Baby Boomers lead the pack with average retirement savings hovering around $289,000. Compare this to Generation X’s average of $82,000, followed by Millennials with an average of $49,000, and Generation Z trailing behind with a median of $29,000, per research from the Transamerica Center.
Young adults in their 20s are usually just starting in their careers and often shoulder a significant amount of student loan debt. However, having 40 years till retirement provides ample time to address these retirement savings shortfalls. The key to success for this age group, according to Fidelity, is investing at least 15% of their pre-tax income annually, focusing on employer-sponsored retirement savings plans such as a 401(k) or a 403(b) plan.
By their 30s, most Americans have advanced beyond entry-level pay grades but may struggle with balancing financial commitments like mortgage payments, childcare, and remaining student loans. With the pressure of these expenses, retirement savings often get neglected. Fidelity suggests having annual salary equivalent saved as a nest egg at age 30, twice the salary at 35, and threefold by the age of 40.
By the time you reach your 40s, you are likely in career prime with a higher salary. However, financial responsibilities also increase, potentially hindering retirement savings. Perhaps you're struggling with a mortgage, children entering college, or merely lifestyle expenditures. Regardless, Fidelity recommends having three times your salary saved by the time you hit 40, moving to six times your salary by age 50.
In your 50s, you're inching closer to retirement. Financial obligations may still be high, especially if you're supporting adult children or dealing with increasing healthcare costs. Catch-up contribution, whereby older employees can contribute more to their retirement plans, is a beneficial tool for those lagging in their retirement savings.
When you approach your 60s, ideally, your savings should be robust. By the time you reach 67, it should be at least 10 times your annual salary, according to Fidelity. However, if you fall short of this goal, it's critical to carefully examine your assets and determine ways to support your retirement needs, including considering Social Security benefits.
Lastly, self-employed individuals or freelancers have the opportunity to open individual retirement accounts to capitalize on their tax benefits, notwithstanding the absence of employer match. Traditional IRAs and 401(k)s enable deposit of pre-tax money, helping reduce taxable income for the year.
Regardless of your current financial standing, there's always a chance to improve your retirement savings. The key lies in disciplined saving, strategic planning with a financial advisor, and adopting an investment mindset leading to a financially secure retirement. Remember, better late than never.