Retirement Income Strategies

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Retirement Income Strategies – The amount of money you should have saved based on your age will depend on your income, lifestyle, savings goals, and plans for the future. According to the Federal Reserve, the average American has almost $42,000 in savings, but that can be skewed by high-net worth individuals. The median savings balance of Americans is just $5,300, and even less for those 35 years old and younger.

Do you feel like you’re behind on saving money? Whether it be for emergencies or retirement, most people are. The median savings for the average American family is just over $5,000. And families are saving less than ever. Americans are saving just 5.4% of their disposable income — the lowest level since the Great Recession.

Retirement Income Strategies

While you may think making more money is the secret to boosting your savings, the truth is, it might not be. Lifestyle creep happens — the more money you make, the more money you spend. You can combat this, however. Individuals with a simple savings strategy save more — meaning they’re more likely to stick to their plan through thick and thin because it’s easy and automated. In fact, according to MoneyHelper (formerly National Savings and Investments), people with a savings goal save faster and up to £550 a year more than people who don’t.

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That doesn’t mean you have to be 100% invested in the stock market or settle for near 0% interest in a savings account — there are ways to avoid market fluctuations and risk and still optimize your savings.

According to the Federal Reserve’s 2019 Survey of Consumer Finances report, Americans had an average savings balance of $41,600. Note that savings does not include retirement or investment accounts, but only what Americans hold in checking and savings accounts.

A newer study by Northwestern Mutual found that the average savings was up to $62,000. However, ultra-high-net-worth individuals are likely skewing these averages. The median balance is likely a better indicator of how much the average American has saved. The Fed’s report found the median savings was $5,300. Below, we break down the average and median savings of Americans across six age groups.

Americans 35 or younger had an average of $11,250 in their savings — the median amount was $3,240. The 35 or younger group is the lowest of the six groups, but it does include teenagers, which can skew the numbers.

How Long Will My Retirement Savings Last? [calculator]

It can be difficult to manage your money as a college student or new professional, and you’re still likely working on those pesky student loans, so it makes sense that this number is low. However, thanks to President Joe Biden’s student loan forgiveness plan, young professionals may be able to boost their savings goals in the coming months and years.

This group had an average of $27,190 in savings — the median was $4,710. This number likely reflects the higher wages that this group is earning (compared to those 35 and younger) and the need for greater savings to plan for emergencies.

However, the lack of savings relative to the next group (45 to 54 years old) is due, in large part, to first-time home buying. The typical age of first-time homebuyers is 33 years old, the oldest since 1981.

Those between 44 and 54 years old had an average savings of $48, 200, with the median at $6, 400. Here, individuals are moving past mid-life, and likely making more money, but could also be paying for higher education expenses for their children.

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The average savings of those 55 to 64 years old was $57, 670, and the median was $5, 620. These individuals are entering retirement (or very close) and are likely tapping into savings to fund pre-retirement expenses and increased medical costs.

Much of this group is younger than the 59½ age limit for penalty-free withdrawals from 401(k)s and individual retirement accounts (IRAs). They’re also younger than the full retirement age for Social Security benefits — meaning they are relying more on savings account balances to get them to retirement.

The 55 to 64 year old age group is likely sacrificing short-term savings to take advantage of the catch-up contributions (50-years old and older) for their retirement accounts.

This group had the highest average savings at $60,410, and the second highest median at $8,000. Many people in this group are now able to move money stocking their savings accounts for near-term retirement costs.

Retirement Planning After Retirement

Americans above the age of 75 had an average savings account balance of $55,320 and a median balance of $9,300. Retirees pulling money from their retirement accounts will stash the money into their savings to fund interim living expenses.

As noted, savings are different from retirement savings. The latter is meant to fund your life after you quit working. This number should be much larger than your savings. As a result, it takes a bit more planning and discipline to build your desired nest egg.

Figuring out your retirement number (the amount you need when you retire) can be cumbersome. However, many financial experts look to simplify this calculation as much as possible. That way, you have a goal to work towards without having to consult a financial advisor or make predictions about decades in the future. The general rules of thumb for targeted retirement savings are:

For example, a 35-year-old making $60,000 a year should have around $90,000 in their retirement accounts — roughly twice what the average person in their mid-30s has saved for retirement.

Retirement Income Planning Software

Of course, these aren’t hard and fast rules, merely guidelines. Your exact numbers will vary based on your current and planned post-retirement lifestyle.

Another way to estimate needed retirement savings is to assume what percentage of your pre-retirement income you’ll need to live on during retirement — and then work backwards. You’ll have to make some key assumptions, such as the average return for your investments and life expectancy, but it’ll give you a more customized target.

Example: Susan is 29 years old and plans to retire at 67 years old. Her life expectancy is 93 years old. She currently makes $55,000 a year and plans to spend roughly 70% of her pre-retirement annual income during retirement. To fund her retirement, she’ll need to have accumulated $1.7 million by the time she retires.

To achieve that goal, she plans to put 10% of her annual income into retirement savings. She currently has $10,000 saved for retirement and assumes that her investments will grow at an average annual rate of 8%. With this plan, she’ll have accumulated the needed $1.7 million upon retirement. Note that this example does not include other income, such as Social Security benefits. If Susan assumes she can collect $1,600 a month in benefits, she’ll only need to have saved $500,000.

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When preparing for retirement, getting started early is key, but many Americans are woefully behind on saving for retirement. For example, the average 40-year-old should have roughly 3 to 4 times their annual income saved for retirement.

If their income is $85,000, that means $255,000 to $340,000 in retirement savings. However, the average 40-year-old has saved around $132,000. Below is a breakdown of the average retirement savings based on the Fed’s report.

Americans 34 years old and younger had an average of $30,200 in retirement savings — the median balance was $13,000. Many individuals in these age brackets are just starting their careers and are often not concerned with retirement. The power of compound interest means that every dollar you invest in your 401(k) at this age will grow more than any later investments you make.

Also, this is the best time to be aggressive and embrace a higher risk tolerance, as time is on your side, so going beyond the 401(k) and investing in an index fund, individual stocks, or taking a risk on some crypto could make sense

How To Manage Unexpected Retirement Expenses

Savings that aren’t for retirement should be in less volatile and easier to access vehicles, like a high-interest savings account.

This group had an average of $132,000 in their retirement accounts — a median of $60,000. As you get older, your income will likely increase, but so will your expenses. During your 30s, you’ll likely still be paying student loan debt while paying for weddings, buying homes, and having children.

Still, you should be putting more money away — upwards of 15% of your income toward retirement while also taking advantage of your employer’s 401(k) match.

Your retirement savings should be steadily rising into your 50s, but you likely still have a mortgage and college tuition. By now, however, most people are in their prime earning years and should be gearing up their savings even more — investing $1,000 or more a month into retirement savings.

Retirement Goals & Strategies

Into your 60s, you may still be paying college education costs for your kids but are likely facing higher medical costs. However, most individuals now realize that retirement is in sight. Savings rates tend to go up as many look to play catch-up — hence the allowed catch-up contributions for certain retirement accounts, such as 401(k)s

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