Saving for retirement is no easy feat for many Americans, as less than two in five non-retired adults believe their savings are where they should be.
There’s little doubt at least a quarter of them are absolutely right since they haven’t saved a thing and don’t expect a pension.
According to an analysis by the Board of Governors of the Federal Reserve System, “preparedness for retirement increases with age, [but] concerns about inadequate savings are still common for those near retirement age.”
In fact, in its Report on the Economic Well-Being of U.S. Households in 2017, the Board found less than half of workers in their 50s and 60s think they are on track with their retirement plan, and one in eight lack any savings whatsoever.
An additional sign of financial hardship for some—and a further detriment to their retirement preparedness—5 percent of employees who put away money in a 401k or other account eventually resorted to borrowing from it. Four percent report making permanent withdrawals, and 1 percent have taken out funds both temporarily and permanently.
Of those who have withdrawn funds early, only 27 percent believe their retirement savings are up to par, versus 39 percent of those who have not made withdrawals.
To be sure, workers perceive retirement readiness differently depending on their account balance and age: “Among young adults under age 30, people typically believe that their savings are on track if they have at least $10,000 set aside for retirement. The amount of savings needed for a majority to think they are on track increases as people near retirement, rising to at least $100,000 of retirement savings among those age 40 and older. Approximately nine in 10 people with at least $500,000 of retirement savings think that they are on track, regardless of their age.”
Data show retirement benefits were offered to two-thirds of employees in 2017. Among those who are participating, 55 percent of workers utilize a 401k or 403b plan. Less than half that number—just 26 percent—say they have a pension plan.
As for those who have already retired, “56 percent draw on a defined benefit pension, and 58 percent use savings from an IRA, 401k or other defined contribution plan.”
Summarized in a statement indicating some level of economic progress but much room for growth, Federal Reserve Board Governor Lael Brainard said, “This year’s survey finds that rising levels of employment are translating into improved financial conditions for many but not all Americans, with one-third now reporting they are living comfortably and another 40 percent reporting they are doing ok financially.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
