Houston, we have a problem—with the difference between Americans’ current retirement trajectory and where they want to be when they actually get there.
A new report from digital financial wellness platform Savology on the current state of personal finance in the U.S. shows Americans need to make changes to achieve the retirement they expect.
Only about one in every four households (28%) are currently on track to meet their retirement goals, meaning 72% are not on track. The average retirement shortfall is more than 10 years, meaning that Americans will either have to delay retirement or adjust their target lifestyle and retirement goals because they are currently not on track to have enough savings to cover their cost of living for about a decade in retirement.
The good news? The average reported savings rates were higher than anticipated at 13.8%. But while the COVID-19 pandemic is no doubt largely responsible for households saving a noticeably higher amount than previous years, the average savings rate deficit, according to the report, is still 9.1%. That’s because Savology pegs the average recommended savings rate at 22.4% of monthly income.
Orem, Utah-based venture-backed startup Savology, founded in early 2019 with an aim of helping American households improve their financial outcomes by providing accessible financial planning, released a comprehensive state of household personal finances report on Jan. 6.
The report examined anonymized data from approximately 40,000 financial plans created across all 50 states and Washington D.C. in 2020 to create a holistic report that covers all personal finance areas including savings, income, debt, spending, insurance, estate planning, risk management, and retirement outlook.
“Our goal was to measure and understand the complete spectrum of personal finances,” said Savology founder and CEO Spencer Barclay. “The information in this report can help us identify the gaps and needs of American households so that we [and others] can more effectively address the problems at hand.”
Retirement trajectory
Gaps between what Americans want for their retirement and what they are currently on track for are significant. For example, the average desired retirement age for Americans is 62, but 72.6 is a realistic retirement age based on current financial situations.
If prescribed changes were made, the report found the realistic average retirement age could be lowered to 64.7.
Americans say they want to retire with the ability to spend 79.9% of their current income annually, but the current realistic retirement income replacement, if no action is taken, is a much lower 68%. This means that without changes, the average American will need to live a more minimal lifestyle in retirement than their current lifestyle.
More key findings
- 81% of households participating in the survey indicated they have at least one retirement savings account, and 26% indicated they currently have a Health Savings Account (HSA).
- Estate planning is one area of financial planning that seems to be significantly neglected, with only 23% having at least a basic will and 2.4% having a complete estate plan.
- Only 36.7% of households have all of the recommended types of insurance needed to mitigate risk based on their specific familial needs.
- Households with dependents are not adequately covered by life insurance. Nearly 50% do not have any, and many of those that do have a significant gap.
While these numbers do show cause for concern, Savology says that through accessible and effective financial planning, households will be able to better understand financial situations and make meaningful improvements.
“Having now seen the numbers and the data, we know all too well that we have our work cut out for us to better the financial lives of millions,” said Savology Director of Marketing Kristian Borghesan.
To view the major findings across all financial areas visit The State of Personal Finance 2020.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
