Saving for retirement.
For almost 100 years when American Express established the first pension system in 1875, employers used to take care of their workers by making them contribute a small amount and then guaranteeing them income for life after they had given a certain number of years of service.
However, over the past two decades, the burden and risk of preparing for retirement has shifted from employer to employee.
Companies started offering 401(k) plans and doing away with pensions.
What was once supposed to be a supplement, the 401(k) has now become the primary method (and expectation) that people will save for retirement on their own.
What that means is that there is a looming and growing problem that most people will be unaware of until it is too late.
Don’t think so? Here is a snapshot of the average retirement savings statistics as it stands in the U.S. today. Read through them and judge for yourself:
- Median household income in the U.S.: $51,939
- The average U.S. household consumer debt profile: Credit card debt: $16,140, Mortgage debt: $155,361, Student loan debt: $31,946
- Number of Americans that save virtually nothing year to year: 18%
- Average age of retirement in the US: 62
- Average life expectancy in the US: 79
- Average size of the Social Security check a retired worker receives: $1,335
- Amount of money Social Security will be able to pay after 2034 due to a deficit of funds: 79 cents for each dollar.
- Amount most millennials “think” they will need to retire comfortably: $2 million
- The average 401(k) balance: $91,800. For those that saved 10 years or more, the average balance was $251,600.
- The average combined IRA and 401k balance was $267,200.
- Monthly income that balance will give you (using the 4% rule): $891 (before taxes)
- Number of U.S. workers who say they will not retire until age 70 or simply never at all: One in three
- The 25-year annualized rate of return of the S&P 500: 9.62%.
- The amount of money $10,000 invested 25 years ago would be worth today: $99,368
- Average 401(k) employer match: 2.7% of pay (free money!)
Wow! Perhaps the walking dead really are among us!
Much like surviving a zombie attack, the trick to survival is to be smart and plan ahead.
By setting a goal, determining how much you need to reach that goal, and then checking in periodically to see whether or not you’re on track, you’ll be giving yourself the best possible chances for success.
Being prepared financially really doesn’t have to be complicated. Nor do you have to know any complex stock stats or special finance secrets.
If you’d like to know a whole more about building your wealth and preparing for the future, feel free to check out the wealth of articles we’ve highlighted in the Start Here page.
Featured image courtesy of Jayel Aheram| Flickr
We have a front row seat to how retirement works with social security alone, as my in laws never saved a dime. They have food, shelter, and a few extras, but they did have to move from the neighborhood they loved to a crappy part of town and sort of rely on us if some big expense comes up. All in all, they are probably lucky, but it’s not how I want to spend my retirement years.
Exactly. I want my golden years to actually be golden, not hanging by threads.
Wow – it sounds like social security is doing just what it was designed for. To keep people alive, but not living extravagantly. That’s a shame that they didn’t have the forethought to save a bit, but it’s good they are not doing that badly. Definitely not the way we want to go 🙂
Good point. Social Security was never designed to be a retirement plan, just a supplement to keep folks from starving or living on the streets. The rest is all up to us!
MMD, love your blog. 6 months in with mine, 70 articles thus far. I’m motivated by the looming “retirement crisis” to reach those unaware of the cliff toward which they’re blindly marching. How do we get folks who don’t care about this stuff to “self-educate” and make a difference while they still have time? Your blog is a great start and I’m aiming for the same, but will it be enough? Any creative ideas of how “we bloggers” can coordinate efforts to compound the impact? For example, bloggers in a region coordinate some type of education/info sessions. Folks become educated. Bloggers gain readers. We all win. What can we do together that seems so difficult alone??? Keep up the great work – your a model and a mentor to me.
Hi Fritz,
Thanks! I’m really glad to hear you’re enjoying the blog and being so proactive with your own. 70 articles in 180 days is a very impressive pace! I wish I had a really good answer for you on coordinating efforts to get more folks motivated to take control of their finances, but its still quite a puzzle. Week after week bloggers publish thousands of pages of free and priceless content on their sites. You’d think any one with any sort of financial problem could easily find the answer if they tried, but its the “if they tried” part that seems to hold most back. Convenience seems to be the key for most, and in many ways I believe that making a positive example of financial success and breaking the information down to a level that practically anyone could understand will be the key.
Retirement is a scary topic. So many save so little, it just makes it easier to ignore it than try to fix it.
My retirement is still hazy, but at least I have a plan and am making progress. I used to think there was no way I’d be able to retire. But the reality is I’ll be retired someday whether I want to be or not, so I’d best do everything I can now to gain control of the when and the how.
That is totally true that retirement will come for you whether you’re ready or not. I can think of a colleague I used to have who became hurt and was no longer able to work. In many ways he’s retired, but not in the aspect that he probably every thought he’d be. You have to constantly be building up to make tomorrow better because you never really know when its going to be time to cash that check.
Jeez, those are bad statistics.
Thank God I’ve been saving and investing for the last couple years. I have very little in my 401k, but the bulk of my net worth is in my dividend stock portfolio. I’m doing whatever it takes to ensure that I always have streams of passive income flowing in.
And now I really want to go fight zombies. Thanks.
Sincerely,
ARB–Angry Retail Banker
Working at the bank, don’t you fight “financial” zombies all the time? … Sorry, that was a really poor joke …
We’re woefully behind on saving for retirement. Too many other fires to put out. (I know, I know, compound interest should take precedence.) It doesn’t help that a) my husband is on disability and b) I’m a contract worker and therefore don’t get any employer match.
At any rate, the goal for 2016 is to set up a SEP and max it out. Unfortunately, it looks like my husband’s disability is going to be yanked, so that’ll take a bite out of our budget.
Yes every year articles are published exposing the real stats for Americans and nothing changes. It is unfortunate that people expect things to happen magically for their finances. I am saving about 25% savings rate, and I hope that is enough to buy early FI. What is your Savings Rate?
I hear you. I’m not sure when people are going to wake up and realize you really do only get what you put into it.
A rate of 25% is pretty impressive! Congrats. We’re at approximately 33%, but it took a long time and a lot of effort to get there.