2023 American Retirement Statistics

I read an article the other day that discussed key retirement statistics for Americans in 2023.  It’s no surprise that there are people that retire without enough money.  However, you would not believe the amount of people that believe they are behind on retirement savings or the amount of non-retired individuals without any retirement savings, at all.  With that in mind, let’s review some of these statistics, their impact on your total retirement savings amount, and your best course of action to remedy these issues.      

Key Takeaways:

·       Current Retirees in 2023

·       Impact of Starting to Save Early

·       Advice For Those Starting Late

Current Retirees in 2023

The first statistic that I want to cover is the average amount of retirement savings per retiree.  According to Synchrony Bank, this number comes out to $221,000.  This seems low considering that these individuals should have worked at least 30-35 years throughout their career.  If you only worked for 30 years and invested $500 per month, then you should have significantly more than that.  Using a 5% annual growth rate, you should have around $405,000.  This was done conservatively too because most individuals work longer and contribute more than $500 per month to their retirement account.

You can see how this is an issue.  These Americans did not make the hard decisions when they were young, and instead of saving, they spent all their money.  Before you make the same mistake, I urge you to use a free online savings calculator.  The one I linked was created by Bankrate.com where you simply input your initial deposit, monthly contribution, period (term), and APY which is the annualized growth rate of these investments. 

If you have already funded a retirement account, then that balance would be your initial deposit.  For example, if you have a 401(k) with your current employer worth $27,000 then you would input that under initial deposit.  You will want to include both your contribution as well as any employer match you get under monthly contribution.  For the period, I would take the number of years until you turn 60 or 65.  Medicare begins at age 65 so it would make sense for most people, especially if you are behind on savings. Lastly, is the growth of the account which goes under APY. I would recommend using a 5% growth rate, there are plenty of years where you will earn more as well as years where you will earn less, so I believe that 5% is a great average to use.

Let’s assume that the person in the example above was 30 years old, contributes $615 per month, plans to retire at age 60, and the projected growth on the account is 5%.  That is a reasonable amount to have saved, but if you were contributing to your 401(k) since your first job and receive a generous employer match then it would not be uncommon to have more.  Regardless, the estimated amount of savings the individual should have in said account at age 60 is $618,148.63.  I’ll take a screenshot so you can see how it looks as well. 

Impact of Starting to Save Early

According to the article, 55% of Americans claim to be behind on their retirement savings. This number is astonishing because once you set up your 401(k), the contributions are automatic.  It makes me think that people just never set them up, which is terrible considering most employers match up to a certain percentage of your contribution.  Therefore, I would urge you to start contributing to your 401(k) today!  The sooner you start the better due to compound interest which I will explain below.   

Additionally, the American Society of Pension Professionals & Actuaries found that the average retirement account balance in an IRA in 2021 was $135,600. Using the calculator above, we can see that is about equal to someone who contributed $100 per month to their retirement account for 38.5 years receiving a 5% annual return.  Of that, $89,863.44 of it is growth in your account because it was allowed to grow over a long period.  However, if you started late, and say only had 20 years to work, then you would have to contribute $335 per month to your account with a 5% annual return.  Under this method there is only $55,546.16 of growth, so the total $135,600 that you now have required you to put a lot more of your hard-earned money in. 

You have now seen the impact of compound interest, but what causes this to happen? I find it’s easier to explain visually. Using the examples above, the $100 contribution method uses $46,200 of contributions while the $335 needed $80,400 to achieve the same total amount.  What happens is that 5% of growth you get each year begins to accumulate.  The growth in your account from the previous year is added to your account balance, and then it grows by 5% with the rest of your account.

Imagine there are two buckets, one for your contributions and the other for any growth in your account.  That bucket of growth is small at first, let’s say $450 and you get 5% growth on those funds which gives you $22.50 of additional growth.  However, after years of accumulation when your growth bucket is now $75,000.  That $22.50 return you got on your growth bucket has now grown to $3,750 on the year, and that’s not even including your contribution bucket.  Therefore, the impact of compound interest on your retirement portfolio can be huge, but the earlier you start, the larger it will be!   

Advice for Those Starting Late

If you do the calculations above and determine that you are not impressed with your projected retirement balance, then there are a few things that you can do. First, you can start saving more (contributing) each month.  The faster you can increase your account balance, the faster the growth in your account can begin to accumulate.  This method may require a few other steps depending on your age and how long you can continue working.  At times, it could make sense to adjust portfolio allocation to make up for lost time, but only in unique situations. 

The other thing that you can do, which will not sound fun, is to work longer.  If you are not able to start contributing more, and you don’t have enough to comfortably retire, then working longer is one of your best options.  Not only will you spend less time “retired” which will result in less money spent, but you will also have an income for longer which could continue to increase your retirement benefit if you qualify for a 401(k) there. Remember, you don’t have to work the same job you do now.  This could be your opportunity to try the job you always wished you tried.  Therefore, you do have options to improve your situation if you are falling behind.

If you are worried about retirement and would like assistance with running some retirement projections, then you should consider reaching out to a financial planner.  Together, we can determine what changes need to be made to ensure you achieve a comfortable retirement. We could also review your investment portfolio itself and review your tax situation to make sure we take advantage of opportunities to keep more money in your pocket.  If you are interested, you can book your free consultation where we can briefly discuss your situation and needs.