The most recent findings of the Federal Reserve Survey of Consumer Finances for 2019 are that on average, Americans have just $65,000 in their retirement accounts, reports CNBC.
The shortcomings of retirement savings are measured across all age groups, but when broken out into more narrow age ranges, the picture doesn’t get much better. For those Americans on the precipice of retirement, ages 55–64, the average amount of retirement savings was $134,000; the youngest group, 35 and under, have only $13,000 saved on average.
“Approximately half of Americans are at risk of not being able to maintain their pre-retirement standard of living after they stop working,” said Angie Chen, research economist for the Center for Retirement Research, Boston College.
While the traditional method of saving for retirement meant targeting a specific savings rate number, typically 25 times the anticipated annual retirement expenses, Chen believes that the more realistic approach in current environments of uncertainty for markets, inflation, and rising rates is to keep it simple.
“People shouldn’t be targeting a number as much as a savings rate,” Chen said. “The best thing people can do is to save early and save consistently.”
Part of the work that the Center for Retirement Research does is to take the recent survey findings and run a variety of scenarios with various data to calculate estimated savings rates for low- and high-income households. That range can be fairly broad and takes into account the percentages of income that would need to be replaced for each group, as well as the amount of Social Security that each would receive.
Rates range anywhere from 11% in the lower income bracket to 16% for higher income, but the rates are based on beginning savings at the age of 25 and estimates retirement at 62. However, chasing rates can be a long-term detriment, believes Jude Boudreaux, CFP at the Planning Center, because if clients believe they can’t achieve a target, they likely will not try at all.
“Setting big targets that you can’t reach is worse than taking smaller steps that fit with where you are in life,” explained Boudreaux. “My advice to clients about saving for retirement is to ask themselves ‘Can you do more?’”
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_For more news, information, and strategy, visit the Retirement Income Channel.