By nature, we are drawn to comparison. If we’re doing better than our literal or figurative neighbors in a certain area of life, we pat ourselves on the back. But if there’s a part of our life we need to work on, we tend to think the grass is greener in someone’s yard. This behavior isn’t always a bad thing, since comparing apples to apples can provide you with a baseline to gauge if you are on track with things like your retirement plan. But how do you make sense of the contradictory and overwhelming information available in light of your own unique situation?
You don’t have to look far to find more retirement information than you’ll ever need. There is plenty of advice on when to start saving, what the best strategies are, and what amount of money will get you through your golden years.
Unfortunately, a lot of the advice can be contradictory or overwhelming. We are told that we need X amount for a 20-year retirement, or that we should contribute X amount to our 401(k). The experts tell us to pay off all of our debt but make sure we have enough liquidity for emergencies. There’s plenty of helpful information available, but how do you make sense of it based on your own unique situation? Since retirement is one of the biggest financial milestones you’ll reach in life, how do you really know if you’re on track? When will you be financially ready?
Comparing the Numbers
With Baby Boomers retiring every day, the Census Bureau predicts that the population aged 65 and over will grow 50% between 2015 and 2030. Because of this, the US Government Accountability Office was tasked with finding out how well prepared American workers are for retirement. They published a comprehensive report in 2015 (1) that we can use to see if your retirement savings are on par with others your age.
Whether you think you’re on top of things or way behind, you may be surprised by what statistics show about retirement savings. Let these numbers serve you as a pat on the back or a kick in the pants.
If You’re Between the Ages of 55 and 64
It may surprise you, but if you have at least $1 saved for retirement, you’re doing better than 41% of those surveyed, and if you have at least $25,000 saved, you’re in the top 59%. Though those numbers may make you feel good about yourself, they don’t guarantee you a comfortable retirement. While you may not know how much you need for retirement, we can be sure it’s more than $25,000.
Here is a table from the GAO’s report showing how resources are divided between households with and without retirement savings in this age group.
Clearly, those without retirement savings don’t have a lot to fall back on. Since they lack additional resources, they will be dependent upon pension plans and Social Security to carry them through their retirement years. Of the 59% that have saved, the median nest egg is only about $104,000. With increasing longevity and health care costs, that probably won’t be enough for a worry-free retirement.
In Table 2, you can see how much savers have actually managed to put away. Where do you fit in?
In this age group, it seems that only the very top savers are ready for retirement. Most of them are still working, though. What about those a decade older? How do you compare to those who have already reached retirement?
If You’re Between the Ages of 65 and 74
65 is a popular retirement age, though more and more people are extending this date so they can catch up with their retirement savings. Like the previous age group, this bracket doesn’t have much in savings. Here is a chart showing the exact same information as the previous age bracket.
In this age group, people are a little more prepared but with only a slightly larger nest egg. However, the median net worth has increased and homeownership rates are higher. Let’s look at their savings breakdown.
Surprisingly, the median amount saved is not significantly higher than that among households aged 55-64. It only increases from $104,000 to $148,000. The lower percentiles nearly double their savings. Where do you fall? If you’re in the 90th percentile, you are probably okay assuming modest spending. But what about the lower percentiles?
It doesn’t take a whole lot of savings to look good relative to your peers. But how are your savings relative to your current lifestyle? Will you have enough to live the life you want or do you need to double down and save more?
Your Personal Retirement Goals
No matter how you compare to your peers, you need to figure out how your savings compare to the cost of the retirement you desire. There are plenty of online retirement calculators available, but they are often generic and don’t take into account the various factors that will impact your personal situation.
The only way to have a clear idea of what you’ll need to retire comfortably is to have a financial advisor run a thorough analysis. A professional can utilize technology to show you different possible retirement outcomes and how to prepare for both the good and the bad.
How We Can Help
You may think that if you don’t have much saved you don’t have enough to work with an advisor. The truth is, you can’t afford not to work with an advisor. You need to build wealth and partnering with an experienced professional is the best way to do that.
At Haydel, Biel & Associates, our goal is to provide you with a solid financial plan that will lessen your stress. We want to help you pursue a life with fewer worries, and more time and resources to devote to your passions. Don’t keep yourself up at night wondering if you will have enough money to retire. Schedule a meeting by contacting me at (626) 529-8347 or emailing me directly at [email protected].
About Haydel, Biel & Associates
Haydel, Biel & Associates is an independent financial advisory firm serving individuals and families near Pasadena, California. The firm was founded in 2004 by Chris Haydel and Ricky Biel with a desire to provide unbiased, client-centered, community-based financial advice. Together, they have built a practice that has grown into a family of caring, smart professionals committed to blending proven investment methodologies with creative financial technologies that make it easier than ever to accomplish your goals. They strive to keep things simple and fun to give their clients peace of mind and alleviate financial stress. HBA Wealth takes care of their clients’ needs first and foremost and goes the extra mile to make their clients’ finances grow. To meet and see how the HBA Wealth team may be able to help, contact them today at (626) 529-8347 or email Ricky directly at [email protected].