- November 20, 2024
- Posted by: Gavtax
- Category: U.S Taxes and Businesses
Retirement planning is one of the most crucial aspects of personal finance, yet it often takes a back seat in our day-to-day lives. Many people wonder whether they are saving enough for retirement, and a common question is, “How do my retirement savings compare to others my age?” Understanding the average retirement savings by age provides valuable context for gauging your financial preparedness.
In this blog, we’ll explore average and median retirement savings across various age groups, discuss why these numbers matter, and outline strategies to build a robust retirement fund.
The Numbers: Average Retirement Savings by Age
Retirement savings vary widely based on factors like income, expenses, and financial discipline. According to data from the Federal Reserve’s 2022 Survey of Consumer Finances, here’s a breakdown of the average and median retirement account balances by age group in the United States:
| Age Group | Average Retirement Savings | Median Retirement Savings |
|---|---|---|
| Under 35 | $49,130 | $18,880 |
| 35 to 44 | $141,520 | $45,000 |
| 45 to 54 | $313,220 | $115,000 |
| 55 to 64 | $537,560 | $185,000 |
| 65 to 74 | $609,230 | $200,000 |
| 75 and older | $462,410 | $130,000 |
What’s the difference between the average and the median?
- The average represents the total amount saved divided by the number of savers. It can be skewed by a small number of people with very high savings.
- The median, on the other hand, is the middle value in the dataset, offering a more realistic picture of what most people save.
Let’s break down these numbers further by age group.
Retirement Savings by Age Group
Under 35: Building the Foundation
(a). Average savings: $49,130
(b). Median savings: $18,880
Most people under 35 are just beginning their careers and focusing on paying off student loans, buying homes, or building emergency funds. Retirement savings tend to take a backseat during this period, which is why the median is relatively low. However, this is the best time to take advantage of compounding interest.
Key Strategy:
Start contributing to a 401(k) or IRA as early as possible. Even a modest amount saved in your 20s can grow significantly over the decades.
35 to 44: Establishing Stability
(a). Average savings: $141,520
(b). Median savings: $45,000
By your 30s and early 40s, career growth often leads to higher incomes, allowing for more consistent contributions to retirement accounts. However, this age group also faces competing financial priorities, such as raising children and paying off mortgages.
Key Strategy:
Aim to save at least 15% of your income, including employer matches. If you’re behind, catch up by increasing contributions or reining in discretionary spending.
45 to 54: Peak Earning Years
(a). Average savings: $313,220
(b). Median savings: $115,000
This age range represents the peak of most people’s earning potential, making it an ideal time to accelerate retirement savings. However, many still find themselves underprepared due to inadequate savings in earlier years or unexpected life expenses.
Key Strategy:
Take advantage of catch-up contributions, which allow individuals over 50 to contribute extra to retirement accounts. This is also a good time to reassess investment strategies and ensure your portfolio is aligned with your retirement goals.
55 to 64: Countdown to Retirement
(a). Average savings: $537,560
(b). Median savings: $185,000
As retirement looms, savings become more critical than ever. While the average savings appear robust, the median indicates that many individuals may not have enough to sustain their desired lifestyle in retirement.
Key Strategy:
Focus on maximizing savings during these final working years. Consider delaying Social Security benefits to increase your monthly payout and plan for healthcare costs, which tend to rise significantly in retirement.
65 to 74: Retirement Begins
(a). Average savings: $609,230
(b). Median savings: $200,000
Retirees in this age group begin drawing from their savings. For many, Social Security benefits supplement withdrawals from retirement accounts. However, without careful planning, there’s a risk of depleting savings too quickly.
Key Strategy:
Create a withdrawal strategy that balances your income needs with preserving your savings. The “4% rule,” which suggests withdrawing 4% of your savings annually, can be a helpful guideline.
75 and Older: Managing Longevity
(a). Average savings: $462,410
(b). Median savings: $130,000
As retirees age, their savings typically decrease due to ongoing withdrawals and healthcare expenses. Those with inadequate savings may rely heavily on Social Security or other forms of assistance.
Key Strategy:
Consider long-term care insurance or other safeguards to protect against high medical costs. Maintaining a balanced portfolio can also help your savings last longer.
Why These Numbers Matter
Understanding average retirement savings by age provides a benchmark for your own financial planning. However, these figures should be taken as a starting point rather than a definitive goal. Here’s why:
(1). Context Matters: Individual needs vary widely. Someone with modest living expenses may require less savings than someone with a more extravagant lifestyle.
(2). Inflation: The cost of living increases over time, so today’s savings may not stretch as far in the future. Adjust your goals to account for inflation.
(3). Healthcare Costs: Retirees face significant healthcare expenses, which can deplete savings faster than anticipated. Planning for these costs is essential.
How to Improve Your Retirement Savings
Whether you’re ahead or behind, it’s never too late to make adjustments. Here are actionable steps to boost your savings:
1. Start Early
The sooner you begin saving, the more time your money has to grow. Even small contributions in your 20s can snowball into significant amounts.
2. Maximize Employer Contributions
If your employer offers a 401(k) match, contribute enough to take full advantage of it. It’s essentially free money for your retirement.
3. Automate Savings
Set up automatic contributions to your retirement accounts. This removes the temptation to spend the money and ensures consistent savings.
4. Diversify Investments
Maintain a diversified portfolio to balance risk and reward. As you approach retirement, shift to a more conservative allocation to protect your savings.
5. Catch-Up Contributions
Once you turn 50, you can contribute additional amounts to your retirement accounts. For 2024, the catch-up limit is $7,500 for 401(k)s and $1,000 for IRAs.
6. Minimize Debt
Paying off high-interest debt before retirement ensures that your savings aren’t eroded by interest payments.
7. Seek Professional Advice
A financial advisor can help you create a personalized retirement plan based on your goals, assets, and risk tolerance.
While the average retirement savings by age can be a helpful benchmark, your individual circumstances and goals should guide your planning. Regardless of where you stand today, there’s always room to improve. By starting early, saving consistently, and making smart financial decisions, you can build a secure and fulfilling retirement.
Remember, retirement is not just about reaching a number—it’s about creating the freedom to live life on your terms. Are you ready to take the next step toward your retirement goals?