The Average Retirement Savings by Age and Why You Need More

One of the most common questions for people preparing for retirement is "Do I have enough retirement savings?" There is no definitive answer to this question. The appropriate level of retirement savings varies depending on the individual's income, living expenses, health status, retirement age, retirement goals, and so on. However, knowing the average retirement savings by age can help you evaluate your own savings status and improve your savings plan if necessary.

How much are the average retirement savings by age?

According to a [report] released by the Federal Reserve Board in June 2022, the average retirement savings by age for U.S. households are as follows.

    

These statistics include all types of assets, such as stocks, bonds, cash, real estate, etc., not just retirement accounts. They also represent the average of households, so individual retirement savings may be more or less than this.

Are the average retirement savings enough?

You cannot assume that the average retirement savings match the amount you need for retirement. The amount you need for retirement varies greatly depending on your retirement period, your spending level after retirement, your expected income and expenses, your investment returns, inflation rates, and so on. Generally, there is a rule that you should save enough to maintain 70% to 80% of your pre-retirement annual income after retirement. For example, if your pre-retirement annual income was $100,000, you would need an annual income of $70,000 to $80,000 after retirement.

But this rule does not apply to everyone. If you want to enjoy more leisure activities after retirement, or your health care costs increase, or you have family members to support, or you want to leave an inheritance, you may need to save more than 100% of your pre-retirement income. Conversely, if you spend less after retirement, or you have other sources of income such as Social Security or pension, or you have paid off your mortgage or children's education debt, you may be able to get by with less than 70% of your pre-retirement income.

Therefore, it is more important to calculate your retirement savings that suit your retirement plan, rather than comparing your average retirement savings with your goals. Use online tools such as retirement savings calculators or get professional help to evaluate whether your retirement savings are adequate.

How to save more retirement savings?

If you think your retirement savings are insufficient, don't worry. There are still ways to increase your retirement savings. Here are some tips that can help you save more retirement savings.

- Start early.

You can start saving for retirement at any age, but the earlier you start, the better. Starting early means you can enjoy the compound interest effect longer and accumulate more money by the time you retire. For example, if you start saving $5,000 a year at age 25, assuming a 7% annual return, you will have $1,068,048 by age 65. On the other hand, if you start saving the same amount at age 35, you will only have $540,741 by age 65.

- Automate it.

Make saving for retirement a habit and automate it so that you can save regularly. For example, automatically transfer a certain percentage of your salary to your retirement account, or automatically transfer a fixed amount from your bank account to your retirement account every month. This way, you won't forget or postpone saving and you will be able to build up your retirement savings steadily.

- Take advantage of your employer's matching. 

Join a retirement pension plan offered by your company, such as a 401 (k) plan or a 403 (b) plan, and take advantage of your employer's matching. Many companies donate a certain percentage of their employees' savings. For example, if your company matches 50% of your savings up to $3,000 a year, you can get an extra $3,000 if you save $6,000 a year. This is like getting free money, so don't miss this opportunity.

Here are some more tips to save more retirement savings.

- Increase your savings rate. 

One of the simplest ways to save more retirement savings is to increase the amount you save. Even a small increase can make a big difference over time. For example, if you save $5,000 a year at age 25, assuming a 7% annual return, you will have $1,068,048 by age 65. But if you increase your savings by $500 a year, you will have $1,271,431 by age 65. Try to save as much as you can, and increase your savings rate whenever you get a raise, a bonus, or a windfall.

- Reduce your fees and taxes. 

Another way to save more retirement savings is to reduce the fees and taxes that eat into your returns. Fees and taxes can vary depending on the type of retirement account, the investment options, and the provider. For example, some retirement accounts, such as Roth IRA or Roth 401 (k), allow you to withdraw your money tax-free after retirement, but you have to pay taxes on your contributions. Other retirement accounts, such as traditional IRA or traditional 401 (k), allow you to deduct your contributions from your taxable income, but you have to pay taxes on your withdrawals. You should compare the pros and cons of different retirement accounts and choose the one that suits your tax situation. You should also look for low-cost investment options, such as index funds or exchange-traded funds, that have low fees and expenses.

- Diversify your portfolio. 

Another way to save more retirement savings is to diversify your portfolio and invest in a mix of assets that match your risk tolerance and time horizon. Diversifying your portfolio can help you reduce the volatility and risk of your investments and increase your potential returns. For example, you can invest in a combination of stocks, bonds, cash, real estate, commodities, etc., that have different characteristics and performance. You should also rebalance your portfolio periodically to maintain your desired asset allocation and adjust it as you get closer to retirement. You should consult a financial planner or use an online tool to help you create and manage your portfolio.

Here are some more tips to save more retirement savings.

- Delay your retirement. 

Another way to save more retirement savings is to delay your retirement and work longer. Delaying your retirement can have several benefits, such as increasing your income, extending your savings period, reducing your withdrawal period, and boosting your Social Security benefits. For example, if you retire at age 65, assuming a 7% annual return, you will have $1,068,048 if you save $5,000 a year from age 25. But if you retire at age 70, you will have $1,622,366, which is more than 50% higher. You will also have five more years of income and five fewer years of withdrawals. In addition, your Social Security benefits will increase by 8% for each year you delay claiming them after your full retirement age, up to age 70.

- Adjust your lifestyle. 

Another way to save more retirement savings is to adjust your lifestyle and spend less. Spending less means you can save more and you will need less money for retirement. For example, if you spend $70,000 a year before retirement, assuming a 7% annual return, you will need $1,068,048 to maintain your spending level after retirement. But if you spend $50,000 a year before retirement, you will only need $764,314, which is almost 30% lower. You can reduce your spending by cutting unnecessary expenses, such as eating out, entertainment, subscriptions, etc., or by downsizing your home, car, or other assets.

- Earn extra income. 

Another way to save more retirement savings is to earn extra income and save it. You can earn extra income by working part-time, freelancing, consulting, or doing other side hustles. You can also earn extra income by renting out your spare room, selling your unwanted items, or monetizing your hobbies or skills. You should save all or most of your extra income and invest it in your retirement account. This way, you can boost your retirement savings and achieve your goals faster.

Explore the links for more insights!

• How much Retirement Savings Do You Need?
• Understanding Social Security Benefits: A Comprehensive Guide
• The 4% Rule for Retirement Fund Withdrawals
• The Perfect Plan for Retirement Savings: 8 Key Elements for Employees
• How to Save for Retirement with 401K