How much each generation has saved in retirement
Jan 24, 2024
Imagine yourself on a sun-drenched beach, immersed in your favorite book, and enjoying a tropical beverage. With retirement in full swing, there's no rush, no obligations – just pure relaxation. It sounds like the epitome of an ideal lifestyle, doesn't it? This lifestyle is possible for you too, but takes planning and won’t just ‘happen’.
The lifestyle you have is tied to what you’ve been able to save. For most, it’s somewhere between the amount they want vs. need.. In this article, we'll explore the retirement savings amounts across different age ranges.
How Much Each Generation Has Saved In Retirement
Take a look at this Northwestern Mutual online survey of 2,740 U.S. adults conducted in 2023. The chart below shows how much each age group has saved for retirement compared to how much they've actually saved. The results hammer home the importance of long-term retirement planning.
The actual amount of money saved for retirement by age range:
The average amount of money saved for retirement for all ages is $89,300. Here's a breakdown of how much has been saved by age range. These amounts are only what’s saved in retirement accounts and not in outside assets like rental properties.
Now let's review how much people in the survey think they need to save for retirement by age range.
The expected amount of money needed for retirement by age:
$1.3 million is the expected amount of money needed for retirement for all age ranges. Let's now break down the expected amounts by age range.
20s: $1.3 million for a difference of $1.262 million
30s: $1.4 million for a difference of $1.333 million
40s: $1.3 million for a difference of $1.222 million
50s: $1.6 million for a difference of $1.49 million
60s: $968,000 for a difference of $855,500
70s: $936,000 for a difference of $822,100
Key Observations From The Retirement Expectations Survey
Here are five main takeaways about retirement from this survey.
1) Retirement shortages at every age group
Unfortunately, even those in their 50s, 60s, and 70s, are still short on retirement funds compared to what they think they need in retirement. The disconnect between want versus reality is one of the reasons why we started Plenty. Small changes in saving and investing can make big differences over long time frames. And there’s no better time than in your 30’s and 40’s.
2) The expected amounts for retirement don't increase by age
We thought the expected amount of money needed for retirement would increase as you get older, accounting for inflation, growing desires, and growing needs. That wasn’t the case.
Individuals in their 40s expected $1.3 million for retirement, which is $100,000 less than what those in their 30s expected. Meanwhile, individuals in their 50s thought they’d need $1.6 million for retirement, a big increase.
3) Americans in their 50s may be more anxious about retirement
The increase in the perceived need for $1.6 million in retirement during your 50s, compared to $1.3 million in your 40s, suggests that people are more worried about having enough. With only a decade remaining until the conventional retirement age, individuals in their 50s often feel stressed about retirement.
Unfortunately, the average amount saved by survey respondents in their 50s for retirement is only $110,900.
For those with children, the 50s is also the time when many parents grapple with the financial demands of paying for college. There is also the responsibility of caring for aging parents. It's only natural for individuals in the sandwich generation to be more stressed, especially when they’re trying to meet their own needs.
4) Not much financial progress after your 50s
Upon reaching your 50s, the survey indicates that it’s hard to make more progress, even when they feel the pressure.
Individuals in their 50s have $110,900 saved for retirement, followed by $112,500 for those in their 60s and $113,900 for those in their 70s. It seems as though Americans find themselves stuck in neutral once they reach the age of 50.
The minimal progress in retirement savings over thirty years is discouraging. And perhaps, that’s why there’s such a strong drop in retirement expectations as individuals get closer to retirement and are forced to confront reality.
We suspect that the stagnation in retirement savings from one's 50s to 70s is tied to a psychological shift to decumulation (the approach of figuring out how to use what you have, to make it last into retirement). Once someone has retired, individuals often sell stocks and other assets to cover living expenses. Most individuals seek to not dip into their wealth much in their 70's, because of uncertainty around future needs.
5) We don't need as much money to live a comfortable retirement life
Individuals in their 60s responded that they only needed $968,000 to retire, a significant decrease of $632,000 or 40% less than what they expected they needed in their 50s. What could explain this shift?
Actually retiring likely played a role. It's common to overestimate retirement needs due to a fear of not having enough. However, worst-case fears often don't materialize.
Consider this: many individuals aim to save 25% of after-tax income for retirement. Once you retire, you won’t be saving for retirement anymore… you’ll have retired. What you actually need to cover expenses will actually be lower than when you needed to earn pre-retirement.
Another factor contributing to the lower expected amount needed for retirement could be the start of Social Security benefits. For those without debt and who own their home, living off the average Social Security benefit of ~$22,884 per person in 2024 is manageable for most Americans. If there's a partner, you’d have a combined $45k+ in Social Security benefits.
Individuals in their 60s may also be supplementing their retirement income through part-time work. Given increasing lifespans, many in their 60s may opt to stay active by engaging in consulting, teaching, and other side hustles.
Related post: Investing 101: A beginner's guide to building wealth
Let's Close The Retirement Gap
Aspiring to have $1.3 million saved for retirement is a reasonable goal. With a 4% rate of return or withdrawal rate, you could potentially spend $52,000 per year gross once you decide to step away from the workforce. It's worth noting that due to inflation, the required amount for a comfortable retirement is likely to continue rising.
However, according to the Northwestern Mutual survey, there seems to be a moment where individuals struggle to consistently save and invest for their futures. It’s not uncommon for couples to believe they’re saving more than they actually are. Especially when there are important tax-advantaged retirement accounts (like 401(k)s or IRAs) that offer tax savings for contributions, it’s important to track where the money is going.
Plenty’s cashflow product was built just for this: so you can easily see how much you’re saving and investing together, and independently.
Consistently investing $20,000 annually to a 401(k) for 10 years at an 8% rate of return leads to an estimated balance of $313,000. Within 10 years, you’d have a retirement balance higher than every average age in the survey. Over 30 years with the same contribution and returns, your 401(k) balance would grow to an impressive $2.45 million.
You can’t change the past, but you can take control of your future. And at Plenty - we aim to make that easy. Track your saving and investing, or open up an IRA today. The easier it is to track your finances, the better positioned you'll be to take the steps for a more comfortable retirement.
- Team Plenty
This information is for general informational purposes only. It is not intended to constitute investment advice or any other kind of professional advice and should not be relied upon as such. Before taking action based on any such information, we encourage you to consult with the appropriate professionals. We do not endorse any third parties referenced within the article. Market and economic views are subject to change without notice and may be untimely when presented here. Do not infer or assume that any securities, sectors or markets described in this article were or will be profitable. Past performance is no guarantee of future results. There is a possibility of loss. Historical or hypothetical performance results are presented for illustrative purposes only.
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