The average retirement savings and how to save wisely

In general, Americans aren’t saving enough for retirement. Are you?

The average retirement savings and how to save wisely

If you’ve ever wondered how your retirement savings stacks up against your peers, you’re in good company. The desire to know where you land in the sea of retirement savers is natural, and it can help either kick-start more progress or give you a feeling of satisfaction. But no matter how the numbers make you feel, they may not be the best measure of whether you personally are on track for retirement.

What is the average retirement savings?

The 2019 Survey of Consumer Finances shows that the average retirement savings for all families is $255,130. The median retirement savings for all families is $65,000.

Taken on their own, those numbers aren’t incredibly helpful. There are a variety of decent retirement savings benchmarks out there, but how much money other people have isn’t one of them. Even breaking the numbers down by age won’t give you a great picture of where your own finances should be. After all, age is just one factor in how much you should save for retirement — and not everyone who is the same age will retire at the same time.

But retirement savings balances do tend to increase with age, as they should — the closer you are to retirement, the more you should have stashed away. (If you’ve been struggling to fund retirement accounts, our guide on how to save money will help.)

How much each age has saved for retirement

A little fine print upfront: Because averages can be heavily skewed by outliers — in other words, the savings over- and underachievers in each group — we’ve also included median balances. The median can often provide a more representative number than the average, and you’ll notice that the median numbers are quite a bit lower than the averages. (All data is from the 2019 Survey of Consumer Finances, unless otherwise noted.)

It’s also worth noting that both figures include only those who have retirement holdings — there are many people of all ages who do not. In 2019, only about half of families owned any kind of retirement account.

Under 35

Average household retirement savings: $30,170

Median household retirement savings: $13,000

Let’s start with millennials; they’re used to being under the microscope. In 2019, 45% of families headed by someone under age 35 had retirement accounts — meant here to include IRAs, Keoghs and certain employer-sponsored accounts such as 401(k)s, 403(b)s and thrift savings accounts.

Of the families in this age group who have retirement holdings, the average value of those holdings is $30,170, and the median value is $13,000. In other words, 3,352 and 1,444 pieces of $9 avocado toast, respectively.

If you’re not sure how much you should save for retirement , it’s best to get an idea for it sooner rather than later — you don’t want to be heading into retirement without enough saved.

Ages 35 to 44

Average household retirement savings: $131,950

Median household retirement savings: $60,000

This age range encompasses the oldest millennials and the youngest of Generation X. More than half (56%) of households headed by someone of this age have retirement accounts, according to the data.

The average and median values of this group’s retirement holdings are significantly higher than those of the under-35 set. These are strong earning years alongside peak spending years. Particularly for those who have kids, dollars may be stretched around paying for child care, saving for college and saving for retirement. If you’re looking to increase those retirement savings, an IRA can be a great way to do it.

Ages 45 to 54

Average household retirement savings: $254,720

Median household retirement savings: $100,000

This group is still part of Generation X, with the oldest members about a decade from what’s considered the standard retirement age. About 58% of households headed by someone this age have retirement holdings, according to the SCF.

These can be peak earning years, especially for men, who see earnings growth until age 55, according to compensation research firm PayScale. The company’s research shows women top out over a decade earlier, at 44.

Ages 55 to 64

Average household retirement savings: $408,420

Median household retirement savings: $134,000

These are baby boomers, and the oldest among them are knocking on retirement’s door — just a couple of short years from Social Security’s definition of full retirement age. About 54.5% of households headed by a baby boomer have retirement holdings.

Ages 65 to 74

Average household retirement savings: $426,070

Median household retirement savings: $164,000

The bulk of these households include someone who is in retirement, or at least of retirement age. As a result, many are at the stage when they are probably spending, rather than accumulating, savings. According to the SCF, 48% of this age group have retirement accounts.

After this point, average and median retirement account values begin to fall, as does the percentage of people who have retirement accounts. For households headed by someone age 75 or older, the median value of retirement holdings is $83,000, with an average holding of $357,920.

What do these numbers tell you?

The headline here: Most people aren’t saving enough for retirement and are entering retirement with very little stashed away.

“ If you use these numbers as your guiding star, you’ll likely be in the same state as most of the country: unprepared for retirement. ”

That’s just one reason why the average retirement savings for someone your age isn’t a benchmark. If you use these numbers as your guiding star, you’ll likely be in the same state as most of the country: unprepared for retirement.

How much you should have saved, and how much you should be saving, have nothing to do with where others your age stand. It has everything to do with your income, planned retirement spending, expected retirement age and life expectancy.

If you want to find out how much you personally will need to retire, a retirement calculator can help. And if that calculator tells you you’re behind? An IRA is a good place to start catching up.

It costs over $1 million to retire at age 65. Are you expecting to be a millionaire in your mid-60s?

If you’re like the average American, the answer is absolutely not.

The Emptiness of the Average American Retirement Account

The first thing to know is that the average American has nothing saved for retirement, or so little it won’t help. By far the most common retirement account has nothing in it.

Sources differ, but the story remains the same. According to a 2018 study by Northwestern Mutual, 21% of Americans have no retirement savings and an additional 10% have less than $5,000 in savings. A third of Baby Boomers currently in, or approaching, retirement age have between nothing and $25,000 set aside.

The Economic Policy Institute (EPI) paints an even bleaker picture. Their data from 2013 reports that “nearly half of families have no retirement account savings at all.” For most age groups, the group found, “median account balances in 2013 were less than half their pre-recession peak and lower than at the start of the new millennium.”

The EPI further found these numbers even worse for millennials. Nearly six in 10 have no retirement savings whatsoever.

But financial experts advise that the average 65-year-old has between $1 million and $1.5 million set aside for retirement.

What Is the Average Retirement Account?

For workers who have some savings, the amounts differ (appropriately) by generation. The older you are, the more you will have set aside. However there are two ways to present this data, and we’ll use both.

Workers With Savings

The following are the mean and median retirement accounts for people who have one. That is to say, this data only shows what a representative account looks like without factoring in figures for accounts that don’t exist. This data comes per the Federal Reserve’s Survey of Consumer Finances. (Numbers rounded to the nearest hundred.)

Average retirement account: $32,500

Median retirement account: $12,300

Average retirement account: $100,000

Median retirement account: $37,000

Average retirement account: $215,800

Median retirement account: $82,600

Average retirement account: $374,000

Median retirement account: $120,000

Average retirement account: $358,000

Median retirement account: $126,000

For households older than 65 years, retirement accounts begin to decline as these individuals leave the workforce and begin spending their savings.

Including Workers Without Savings

When accounting for people who have no retirement savings the picture looks considerably worse. The following are the median retirement accounts when including the figures for people with no retirement savings. The following do not include mean retirement accounts, as this would be statistically less informative than median data.

• Age 38 – 43: $4,200

• Age 44 – 49: $6,200

• Age 50 – 55: $8,000

• Age 56 – 61: $17,000

How Much Should You Have Saved For Retirement?

So that’s how much people have saved for retirement, or more often don’t. Now for the more useful question: How much should you have saved for retirement?

The truth is that there’s no hard and fast rule. It varies widely by your age, standard of living and (perhaps most importantly) location. Someone who rents an apartment in San Francisco needs a whole heck of a lot more set aside than a homeowner in the Upper Peninsula of Michigan.

The rule of thumb is to estimate by income. Decide the income you want to live on once you retire, then picture your life as a series of benchmarks set by age. At each age, you want a multiple of this retirement income saved up. Your goal is to have 10 to 11 times your desired income in savings by retirement.

• By age 30: between half and the desired income in savings

• By age 35: between the desired amount and double the desired income in savings

• By age 40: between double and triple the desired income in savings

• By age 45: between triple and quadruple the desired income in savings

• By age 50: between five times and six times desired income in savings

• By age 55: between six times and seven times desired income in savings

• By age 60: between seven times and nine times desired income in savings

• By age 65: between eight times and 11 times desired income in savings

So, if you earn $50,000 per year, by age 40 you will want to have between $100,000 and $150,000 in retirement savings set aside. The formula grows later in life for two reasons. First, as your savings accumulate they will grow faster. Second, as you approach retirement it is often wise to accelerate your savings plan.

What You Should Do Next for Your Retirement Savings

Retirement is approaching a crisis. In the coming decades, millions of Americans will get too old to continue working without the means to stop. Millennials, crippled by debt from graduation, will turn this crisis into a catastrophe in about 40 years. And Social Security, designed to prevent exactly this problem, covers less than half of an average retiree’s costs of living.

It’s beyond the scope of this article to discuss exactly how this happened, but if you’re one of the many people who have fallen behind on retirement savings, don’t panic. There’s plenty you can do. But… it might not necessarily be easy.

The key is to think about retirement savings like a debt. This is money you owe to yourself and it charges reverse interest. Every day you go without adding money to your retirement account is a day you lose investment income. That’s money that you’ll need someday and won’t have.

Next, take stock of where you are. How much will you want to live on in retirement and how much do you have saved today? Use our chart above. That will tell you how far behind you are compared to where you need to be. Are you a 40 year old with $25,000 in savings who will want to live on $50,000 per year in retirement? Then you’ve got $75,000 you need to make up for.

Now, begin catching up. Chip away at that debt every week and every month. Pay into your 401k and IRA the same way you would whittle down a credit card. By thinking about it this way, as a specific goal, you can take away some of the fear of saving for retirement and turn it into an achievable (if large) amount. It’s not just some big, black hole you can never fill. It’s a number, and numbers can go down.

It won’t necessarily be fun. You might have to cut back on luxuries or take on some extra work, but even if you start late in life you can catch up on your retirement.

Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, like American Express, but our reporting and recommendations are always independent and objective.

  • The typical American’s retirement account looks very different depending on their age, according to data gathered by Personal Capital.
  • The wealth management company analyzed 337,000 linked retirement accounts and sorted users into 10-year age brackets to find the median balance of each age group’s retirement accounts.
  • The typical 20-something has about $34,000 in their retirement account, while the typical 60-something has $642,000.
  • But, the typical 60-something still doesn’t have all that much saved considering Americans are living longer. To live on $65,000 per year, it would actually take about $1 million more.
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Retirement savings need plenty of time to grow, and younger people appear to be taking this to heart.

Data from Personal Capital looks at the median retirement account balances of about 337,000 Personal Capital users ages 20 to 69. The data includes all types of retirement accounts, including IRAs and 401(k)s, but does not consider any other linked accounts — like checking or savings — and excludes spousal accounts.

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Millennials seem to be getting a good start on their savings, with Personal Capital’s typical 20-something client carrying a balance of about $34,000 in their retirement accounts. Between ages 20 and 49, account balances nearly triple for every 10-year age bracket.

20-somethings are off to a strong start

According to a 2019 survey from Morning Consult and Insider, over 45% of millennials have a retirement account. Starting early is especially important when it comes to retirement, because one of the biggest factors that helps retirement savings grow is compound interest, where money saved generates interest on itself. The more years this process has to work, the more savings will grow.

Personal Capital’s data looked at over 40,000 linked retirement accounts from millennials. With the median balance for 20-somethings at $34,006 and more than 30 years before retirement age, millennials’ retirement plans are well on track.

“If you waited an extra 10 years to start saving for retirement, you could be missing out on over half of the possible savings,” Amy Oulette, a financial planner and the director of retirement services for Betterment and Betterment for Business, previously told Business Insider. Saving sooner rather than later can help.

The typical 60-something hasn’t yet hit $1,000,000, and that could be a problem

While millennials are doing well with their saving, the older generations seem to have slowed down, and this might leave them with less than they thought in retirement. The typical 60-something has just over $642,000 saved, which sounds like a lot of money — until you realize it might have to support you for the rest of your life.

Business Insider’s Tanza Loudenback calculated that a person who retires at age 65 would need about $1.6 million in their investment accounts on the day they left work to live on $65,000 per year. According to this data from Personal Capital, many in their 60s are falling short of that benchmark.

Even for a couple who shares living expenses on two retirement accounts, the combined amount falls over $330,000 short of the amount they’d need to live on $65,000 per year.

In many parts of the US, $1 million in retirement money won’t even last 20 years. And, estimates on healthcare costs from Vanguard project that a typical 65-year-old retired couple will spend $197,000 in healthcare expenses alone during their retirement, or just about 30% of what the typical 60-something has saved.

According to a survey by Charles Schwab conducted in 2019, the average American felt that they’d need to save $1.7 million to retire comfortably. But, getting to that point is harder than it sounds. While we can’t draw conclusions from millennials’ and boomers’ respective balances, we can look at these numbers through the lens of someone who eventually wants to retire: Retirement is expensive. Start saving now.

Target Retirement Savings By Age

The average retirement savings and how to save wisely

Fee-for-service financial planner and founder of

You need less for retirement than you think. Numbers are often thrown around for retirement, $1 million comes up often, probably because it’s an nice round number. Now they’re saying $1 million isn’t even enough. Now they’re saying you need more, maybe as much as $2 million.

The truth is…. that’s utterly ridiculous. The average Canadian won’t need $2 million to retire and if you’re targeting that amount (or even $1 million) you might be saving TOO MUCH for retirement.

Where are these lies coming from? My guess is from the financial services industry in general. In general, the financial services industry gets compensated for investments under management, products sold, and debt/mortgages. This leads to quite a bit of biased information coming from the financial services industry.

The sad truth is that the more money you save the more “they” get paid. They don’t want you to settle for $1,000,000 in savings when $2,000,000 could mean more in annual fees. How much more? About $23,500 more in annual fees.

That’s not a typo. You read that right. The average mutual fund fee in Canada is around 2.35%. Annual fees on a $2 million portfolio are $47,00 per year, PER YEAR, when it’s invested in the average mutual fund portfolio.

No wonder they keep telling us to save, the more we save the more they earn.

The crazy thing is that the fees on a $2 million mutual fund portfolio are enough to fund the average retirement. Imagine, the FEES ALONE are enough for the average retirement, and yet they continue to tell us we need to keep saving.

So how much do you actually need for the average retirement? How much should you have saved? What is the target retirement savings by age? It’s less than you think. But first, let’s cover a few assumptions.

When we’re talking about the average retirement we’re going to use roughly the median income for seniors in Canada. For an individual, we’re going to use $36,050 and for a couple we’re going to use $64,800. If you’re earning an above average income today, or you want to have a more luxurious retirement, then you may need to boost your savings accordingly.

This income may not seem like a lot, but we’re also going to assume that they have a paid off home or condo, this means living expenses in retirement will be much lower than they are today.

We’re also going to assume they retire at the typical retirement age of 65. This means they will immediately qualify for CPP and OAS. We’re going to assume they get the full OAS of $7,210 per person per year. And we’ll assume the average CPP of $8,077 per year. We’ll also assume they’re eligible for seniors’ tax credits that will eliminate all (or at least most) of their income tax each year.

We’re also going to assume that they use a TFSA for retirement savings. This means there are no taxes to worry about on withdrawals. We’re also going to assume a somewhat assertive 80/20 portfolio of stocks and bonds leading up to retirement and a slightly more conservative portfolio of 70/30 stocks and bonds after retirement.

In all the calculations, we’re assuming a constant rate of return, which isn’t actually realistic. You could be ahead of your target retirement savings this year and then fall way behind the next year due to poor returns or a stock market correction. This matters less when you’re far away from retirement, but can make a big difference if you’re only a few years away.

Lastly, we’re going to assume we want this money to last from age 65 until age 100. We’re assuming a nice long 35-year retirement, which is pretty conservative.

If any of these assumptions don’t fit your particular situation then you may want to consider a custom financial plan with an advice-only financial planner to help you determine exactly what your goals are and how much you need to save.

Based on these assumptions we have two numbers that we need to target for after-tax income in retirement.

For a single individual, we need to target income of $20,763 per year coming from savings. To get that number we start with our target spending of $36,050 per year and subtract CPP of $8,077 per year and OAS of $7,210 per year.

To get $20,763 of annual income from their TFSA in retirement they need to have $442,235 saved by the time they turn 65.

That’s our savings goal for our individual, $442,235 at age 65 (in today’s dollars).

For a couple, we need to target income of $34,225 per year coming from savings. To get that number we start with our target spending of $64,800 per year and subtract CPP of $16,154 per year and OAS of $14,420 per year.

To get $34,225 of annual income from their TFSA in retirement they need to have $748,983 saved by the time they turn 65.

That’s our savings goal for our couple, $748,983 at age 65 (in today’s dollars).

Even for a couple we’re way below $1 million, let alone $2 million.

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Now that we know how much we need by age 65 we can work backwards and figure out exactly how much we need to target in retirement savings for each age.

Thanks to the power of compound interest the target retirement savings by age are very realistic at younger ages. Saving early on will let compound interest do much of the work. By age 30 our couple will need a total of $88,112 in retirement savings. By age 40 they need $204,430. By age 50 they need $370,540.

Warning! Because we’re assuming these savings are in a TFSA if you have money in an RRSP you need to reduce those amounts by 20-30% before comparing vs the target retirement savings by age. This is because RRSPs are pre-tax and any withdrawals will require income tax to be paid plus they will reduce your government benefits too. Find out if you should be using a TFSA or an RRSP, the difference could be huge!

Need a quick gauge for how much savings you need to retire and how to get there? Here it is.

How much do you need to retire? And, equally important, how do you reach that goal? These questions baffle many American savers, and it’s no wonder. Financial experts throw out retirement savings numbers ranging from $1 million to $5 million, along with confusing rules about how much you should save, what your retirement living expenses will look like, and how much you can withdraw from your portfolio each year.

Let’s try to clear up that confusion right now with real-life numbers. The table below shows estimated retirement income, savings targets, and required monthly contributions for different salary levels and time frames. As is the case with any retirement projection, these numbers carry several assumptions, which are explained below the table. Review those explanations carefully; they can help you construct retirement projections tailored to your situation.

The average retirement savings and how to save wisely

Image Source: Getty Images

Estimated Income Needed from Savings (70%)

Monthly Contribution With 20 Years to Reach Target

Monthly Contribution With 25 Years to Reach Target

Monthly Contribution With 30 Years to Reach Target

Data source: author calculations

Estimated income needed from savings

How much income you’ll need to generate from your retirement savings depends on your living expenses in retirement. An old guideline advises you to plan on needing 70% to 80% of your working income to cover your expenses in retirement.

But that’s overly optimistic today, particularly if you retire with a mortgage, credit card debt, or student loans. Some expenses will go away, like retirement contributions, but others will increase. The big wild-card expense in retirement is healthcare. One study from the Center for Retirement Research at Boston College estimates that the average retiree will spend $4,300 annually in out-of-pocket medical expenses, not including long-term care.

So it’s wise to assume you’ll need 100% of your working income in retirement. Social Security typically replaces 30% to 40% of that, depending on when you claim. The chart above assumes 30%, which means your savings will fund the remaining 70%.

Savings target and the 4.5% rule

Once you know how much income you need from your savings, you can do a quick calculation to translate that into a target savings balance. Simply divide your income number by 4.5%, or 0.045. If you need your savings to generate $70,000 in annual retirement income, for example, you’d aim to amass at least $1,555,556 in your retirement account.

This calculation is based on the idea that you can safely withdraw 4.5% of your retirement savings in your first year of retirement. Thereafter, you can adjust your distribution to keep pace with inflation. At that withdrawal rate, a portfolio of 50% in stocks and 50% in bonds should remain solvent for 30 years, even through bear markets that rival history’s most volatile times.

Average annual return, inflation, and taxes

Now for the fun part, which is understanding how to reach your target savings balance. You can use any compound earnings calculator online to play with these numbers on your own. You will need to assume an average annual growth rate. The chart above assumes a 7% growth rate, which is in line with the long-term annual average of the stock market. You could use a lower rate to be conservative, but not higher. Even professional mutual fund managers don’t beat the market consistently.

Inflation is another consideration when you’re projecting long-term earnings growth. Inflation in recent years has been about 2% annually. To keep things simple, the retirement data above assumes no inflation, but also no salary increases. In real life, your income should rise each year, and at least keep pace with inflation. Know that if you want to project these numbers on your own and you account for future salary increases, you’d have to account for inflation, too.

Year-to-year taxes can slow your wealth production, which is one argument for investing in a tax-advantaged 401(k) or IRA. In those accounts, you don’t pay taxes on your earnings until you withdraw funds in retirement. Again, for simplicity’s sake, the chart assumes you are investing in a tax-advantaged account and have no annual taxes (though the highest contribution amounts above do exceed the federal limits). In 2020, you can contribute up to $19,500 in your 401(k) and $6,000 in your IRA. For savers 50 or older, contribution limits increase to $26,000 for the 401(k) and $7,000 for the IRA.

The takeaways

The big standout in this retirement chart is the contribution rate, and how it changes based on your savings timeline. If you have 20 years until retirement and no savings, your target contribution rate is 36% of your pay. That’s likely unrealistic. The next best thing is to contribute whatever your budget allows now, and raise that contribution with every salary increase. Plan on putting any cash windfalls into your IRA or long-term savings account, too.

A second big takeaway is the size of the saving balance you’ll need. Social Security will keep you out of poverty, but it will not fund the lifestyle you’re used to. To avoid a big lifestyle downgrade, most people need seven figures in the bank at retirement. You can only reach that goal by taking your retirement savings seriously. Either you make tough choices now to save and invest, or you spend your senior years just scraping by.

Finally, you have to invest in the stock market to reach your savings goals. These projections use a 7% growth rate, which is seven times higher than what you’d earn in a high-yield savings account. Stocks come with a risk of loss, but staying out of the market guarantees you’ll have to downsize once you stop working.

Don’t wait to save

It’s far easier to accumulate large amounts of wealth when you start saving early. Protect your future and get serious about your retirement contributions today.

By MoneySense Staff on October 27, 2015

By MoneySense Staff on October 27, 2015

Savers have amassed $70,700 each and it’s mostly in cash

BlackRock polled 2,000 Canadians as part of a larger international study and found that while 60% of Canadians are actively saving for retirement, including 52% of 25-to-34-year-olds, there’s a clear discrepancy between retirement income expectations and savings habits.

Respondents said on average they expect an annual income of $46,900 for 25 years in retirement. But those who’ve started saving have amassed on average just $70,700 in total, barely enough to cover 18 months of expenses. That number is little higher among pre-retirees aged 55 to 64 at $125,000, still likely not enough even if expertly invested.

“Retirement is one of the most important global issues that we face today, this survey reinforces that point,” Chip Castille, BlackRock’s Chief Retirement Strategist, said in a press release.

“As we contend with a decline in traditional sources of retirement income, coupled with global populations living longer, understanding the gaps and taking meaningful steps to address them is both a challenge and an opportunity. Whether it’s starting early, engaging in a workplace plan or simply understanding how much annual income you’ll need, just getting started is a powerful first step that everyone should be taking.”

The survey shows that while 47% and 42% are contributing to Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts, respectively, only 40% said they have some idea of how much money they need to retire and a full one-third said they had no idea at all. (In case you’re wondering, MoneySense crunched the numbers and found the typical middle-class Canadian couple can live comfortably on $42,000 to $72,000 a year ($30,000 to $50,000 for singles) assuming no mortgage or child costs. You can use this tool to arrive at a more specific number for yourself.)

Knowledge gap

The Investor Pulse also revealed a troubling lack of investment knowledge. One-in-four said they are clueless about their current investment options and only 36% said they are at least somewhat knowledgeable about what types of investments they should consider to maximize their retirement savings.

Nothing illustrates this skills problem better than the actual makeup of Canadian portfolios. A whopping 60% of the typical portfolio is being held in cash–far too much to meet most retirement needs when you factor in record-low interest rates and inflation. What’s more, nearly half of survey respondents (45%) said they plan to increase their cash holdings next year. The average Canadian portfolio holds just 19% in equities, 7% in bonds, 4% in property, 3% in alternatives and the rest in other asset classes.

When asked why they’re sitting on so much cash, the majority cited accessibility and/or convenience while 25% admitted to a fear of losing money and 10% said it was because they didn’t understand their options.

This savings strategy seems safe, but it’s actually a lot more dangerous than you think.

Sparing any money for retirement savings is a challenge, but that’s only half the battle. You also have to decide where you’re going to house that money so it can grow over time without exposing you to too much risk. The right choice depends largely on the types of accounts you have access to and your long-term goals.

But there’s one place you should never house the bulk of your retirement savings — at least if you hope to retire anytime soon.

How much are you earning on your savings?

Personal retirement savings can be broken down into two parts: your contributions and your earnings.

  • Contributions are the dollars you earn that you set aside for your retirement every year.
  • Earnings are the extra money you get from the place you keep your money.

The average retirement savings and how to save wisely

Image source: Getty Images.

Saving in a savings account: If you house your money in a savings account, your earnings are based on your account balance and your annual percentage yield (APY). The current average savings account APY is 0.06%. That means for every $10,000 you have in your account, you’ll earn $6 per year.

Saving by investing: When you’re investing, your earnings depend on your investment returns. Investing in bonds could bring earnings of around 5% to 6% per year. Investing in stocks could potentially net you a 30% return in a very good year, but you could also lose just as much in a bad year.

Your returns also aren’t guaranteed until you sell your stocks. Prices fluctuate over time. That can have a significant effect on your portfolio balance, especially for those with substantial savings.

This volatility can make investing seem like a risky proposition compared to keeping your money in a savings account where it seems you can only stand to gain, albeit at a slower rate. But that’s a false premise.

So what’s riskier? Saving for retirement in a savings account, or investing?

For one, money in a savings account is only protected up to $250,000 per person per bank. If you keep more than this in a savings account and your bank goes under, you could lose the extra. While unlikely, it’s a risk you probably don’t want to take.

Keeping your money in a savings account can also be risky because the rate of inflation often exceeds even the best savings account APYs (annual percentage yield. That means that you’ll actually lose buying power over time because the rate your savings are growing at isn’t enough to keep up with the rising cost of living.

While investing does carry a risk of loss, there are things you can do to reduce that risk. And the long-term earning potential can make saving enough for retirement a much easier task.

Let’s say you’re 25, trying to save $1 million by the time you’re 65. If you keep that money in a savings account with a 0.06% APY, you’d have to save at least $2,059 every month for 40 years in order to achieve your goal. And even then, you’d be exposing yourself to the risks discussed above.

If you’d invested that money instead and you earned a 7% average annual rate of return, you’d have to save just $405 per month. Over 40 years, that amounts to nearly $794,000 less in personal contributions to reach the same goal. Imagine what you could do with $794,000 over the course of your life. Investing’s not looking so risky anymore, is it?

Balancing risk and reward when saving for retirement

The upsides to investing are undeniable, but that doesn’t erase the fact that there is risk to investing. If you choose the wrong investments is a risk in itself.

For example, if you get swept up in the meme stock craze — you could end up losing your money when the stock’s share price falls to reflect its true value or when the company goes out of business.

If you want to maximize the benefits of investing while minimizing the risks, you have to diversify your investments. That means putting your money in several companies and several sectors. This way, no single company or sector can affect your portfolio too much.

An index fund is a great way for beginners to quickly and affordably diversify their savings. These are bundles of stocks you purchase together, so you instantly get a small piece of each one. Look for an index fund composed of large, established companies that you believe will be around for decades to come. These stocks may not increase in price as rapidly, but they typically generate consistent returns over time.

You should also invest some of your money in bonds, and you should move more of your money into these over time. This will help you avoid some of the volatility of stocks as you get closer to retirement age while still helping you earn a better return than you’d get by leaving your money in a savings account.

Investing will never be risk-free, but in the long run, it’s probably less dangerous than keeping your savings out of the stock market altogether. If you’re still hesitant, start small and then try to increase your contributions over time as you get more comfortable. Use a retirement account too so you can take advantage of the tax advantages these accounts offer.

And remember, when you’re talking about retirement savings, the short-term swings don’t matter. Focus on the long term. If you can do this, you might just be surprised by how fast you reach your retirement goal.

This article will cover in detail retirement savings by state. The higher the retirement savings by state, perhaps the more attractive the state is to retire in. After all, the states with the highest retirement savings must be doing something right!

Folks know I’m biased towards West Coast living due to the weather, diversity, food, culture, and employment opportunities. Places like Portland, Seattle, LA, San Jose, and San Francisco are doing well due to the tech boom. The East Coast is nice, but it’s not the same. I did live in Virginia and New York from 1991 – 2001, so I do have perspective.

Despite all the job opportunities, it turns out the East Coast, the Midwest, and the Southern states dominate the retirement savings leaderboard according to aggregate data collected from Personal Capital’s 2 million user base. If you don’t know, Personal Capital is a leading digital wealth manager with the best free tools for managing your wealth online today. You can sign up for free here.

Let’s have a look at the data!

Retirement Savings By State

The average retirement savings and how to save wisely

It’s surprising, yet not so surprising that residents of Delaware have the most amount of retirement savings. Delaware is #7 on the list of most number of millionaires per 1,000 households at 35. Meanwhile, Delaware is also one of the most tax friendly states with the following benefits:

  • Social Security benefits are not taxed.
  • No state or local sales tax.
  • No inheritance tax.
  • No personal property tax.
  • State income tax ranges from 2.2% to 6.6%.
  • Railroad Retirement benefits are exempt and taxpayers over 60 years may exclude $12,500 of investment and qualified pension income.
  • Up to $12,500 of retirement income is tax exempt for those who are 60 and older.

Connecticut, New Jersey, Maryland, and Massachusetts have high tax rates, but also a larger amount of wealthier residents due to wealth centers in Boston, Washington D.C., and New York City. Residents of Alaska actually get a tax credit every year for living there.

The biggest surprise in the top 10 is Iowa at #6. I’ve been to Des Moines many times to see Principal Investments, one of the nation’s largest 401k providers. But other than Principal and the food processing industry, I’m not sure what other industries provide them with nation-leading retirement savings. Any Iowans out there care to share their source of wealth?

The biggest downside surprise is Hawaii at #46. The cost of living in Hawaii is regularly in the top three, which should portend to a higher retirement saving amount. But perhaps due to Hawaii’s high cost of living, a larger majority of retirement savings is spent to live.

Another reason for lower retirement savings could be due to multi-generations under one roof. Each individual/family might not need to therefore save as much compared to the individual/family who lives alone.

Given our earliest settlers started on the East Coast, it makes sense there is more wealth accumulated on the East compared to the West.

Retirement Savings By Generation

In addition to providing analysis on retirement savings by state, Personal Capital also analyzed retirement savings by generation. As would be expected, the amount of retirement savings across all account holders rises with age.

The average retirement savings and how to save wisely

Every single generation’s retirement savings amount looks pretty decent compared to the medians and averages across all Americans. So this begs two questions:

  1. Are wealthier people more proactive in managing their money with free financial tools?
  2. Or, do people who leverage free financial tools and actively manage their money tend to be wealthier than average?

I’m pretty sure there’s some truth to both. If you’re a regular reader on Financial Samurai, you can’t get enough articles about growing your wealth.

When I was in high school, I’d grab the following magazines in this order: MONEY, Fortune, Forbes, Car & Driver, and Sports Illustrated. I was so fascinated with money that I decided to major in Economics, get an MBA, work on Wall Street, and start a personal finance site! All of these activities helped me create wealth.

The Biggest Impact To Retirement Savings

Beyond when you were born or where you live, Personal Capital believes the biggest impact on retirement savings has to do with proactive planning. You can believe what we want, but when you’ve got a statistically significant amount of data like they do, it’s good to take notice.

They realized that users who created a retirement plan through the Retirement Planning Calculator had roughly 75% higher retirement balances than those who didn’t bother. That is a huge difference!

Due to Financial Samurai, I regularly set financial goals, write goal updates, and analyze successes and failures. There’s no doubt in my mind I’d be poorer if I wasn’t so focused on personal finance.

So for all of you who’ve been putting off analyzing your current financial situation, getting help from a financial expert, or setting some concrete financial goals, what are you waiting for? Get on it already!

You can track your net worth, plan for retirement, analyze your investments for excessive fees, manage your cash flow, and plan for retirement for free with Personal Capital. It’s all free and easy to use.

Author Bio: I started Financial Samurai in 2009 to help people achieve financial freedom sooner, rather than later. Financial Samurai is now one of the largest independently run personal finance sites with 1 million visitors a month.

I spent 13 years working at Goldman Sachs and Credit Suisse. In 1999, I earned my BA from William & Mary and in 2006, I earned my MBA from UC Berkeley.

In 2012, I left banking after negotiating a severance package worth about five years of living expenses. Today, I enjoy being a stay-at-home dad to two young children and writing online.

Current recommendations:

1) Real estate is my favorite asset class to build wealth. Real estate is less volatile than stocks, produces income, is tangible, and provides shelter. Roughly 40% of my net worth is in real estate.

Take a look at Fundrise, my favorite real estate crowdfunding platform with diversified eREITs. For most people, investing in a eREIT or ETF is the easiest way to gain real estate exposure without leverage.

2) Take advantage of low mortgage rates by refinancing with Credible. Credible is a top mortgage marketplace where qualified lenders compete for your business. Get no-obligation refinance or purchase quotes in minutes. Rates are still close to all-time lows.

3) If you have dependents and/or debt, it’s good to get term life insurance to protect your loved ones. The pandemic has reminded us that tomorrow is not guaranteed. PolicyGenius is the easiest way to find free affordable life insurance in minutes. My wife was able to double her life insurance coverage for less with PolicyGenius during the pandemic.

Black Americans face many negative stereotypes and disadvantages over their white counterparts. One difficulty Americans of all cultures face is saving for retirement. There have been many studies done that conclude that black Americans have less money saved for retirement than white Americans. The undertone is that black Americans are less responsible with their money and value retirement less than their white counterparts. Our study shows this is not true.

We asked both white workers and college-educated black Americans to respond to a survey regarding what percent of their income they save for retirement, how much they save in total, and how much importance they place on saving. Our findings were interesting and showed that while black Americans save less in total dollars than their white counterparts, they save a higher percentage of their total income and place a higher value on the importance of saving for retirement. See the results of our survey of Caucasian workers and our survey of black college-educated workers.

Why We Conducted This Survey

Saving for retirement is important. Living costs are skyrocketing and pensions are a relic of the past. Meanwhile, life expectancy is rising with better medical care and people are commonly living past age 90. Social security is underfunded, so people really need to save a lot of money or work well into their golden years to make sure they don’t run out of money.

There has been a lot of research, and press showing that black Americans save less money and have less money in retirement accounts than white Americans, like this survey from the Center for Global Policy Solutions. This survey demonstrates that the average working white family age 35-44 have $57,822 saved for retirement while the average black family of the same age group has only $16,508. Separately the study looks at average pay across education levels between white and black families and shows that black families earn less.

The negative connotation is that black families both earn less and are less willing to save for retirement than their white counterparts, but according to our survey this is only partially true. While black families do save less in total, they actually value retirement savings more and are more willing to commit a high level of income to save than white families.

Previous research has shown that education levels have a significant effect on readiness for retirement. Also significant, while 33% of white Americans attain a bachelor’s degree, only 22% of black Americans achieve the same level of education according to 2015 government census data. Combined with lower incomes earned across the same level of education, it is no wonder that on average, black Americans save much fewer total dollars than white Americans. Black Americans save less because they are in a disadvantaged position, not because they are less willing to save. This is an important distinction to draw.

Our Findings

In terms of income earned, there is no question that white workers earn more than college-educated black workers. We found that while 51% of the Caucasian people we surveyed make more than $50,000 per year. Alternately, 64% of the black workers we surveyed make less than $50,000 per year. There is no question that this puts white workers at a distinct advantage in saving. Even if white and black workers saved the same percentage of their money, white workers would far outpace the black ones. Here we illustrate the results of our surveyed income distribution.

The average retirement savings and how to save wisely Income distribution for surveyed black workers The average retirement savings and how to save wisely Income distribution for white workers surveyed

There is no doubt that this disparity led to a distinct advantage for white workers in terms of total dollars saved to their retirement accounts. Significantly, 48% of our white workers surveyed saved at least $3,000 per year. Conversely, only 37% of college-educated black workers were able to save $3,000 or more.

The average retirement savings and how to save wisely Total annual savings for black workers The average retirement savings and how to save wisely Total savings for white workers

Black Workers Save More of their Income and Value Retirement Savings More

What might be surprising to some is that our survey found that black college-educated workers actually saved a higher percentage of their income than their Caucasian counterparts. Only 10% of college-educated black workers save less than 2% of their income for retirement whereas 28% of Caucasian workers save less than 2%. Of those surveyed, we also found that 40% of black workers saved 10% or more, while only 24% of Caucasian workers did the same.

The average retirement savings and how to save wisely Percentage of income saved for retirement by college-educated black workers.

The average retirement savings and how to save wisely Percentage of income saved for retirement by Caucasian workers.

This clearly indicates that black workers value retirement savings more than white workers. We also asked our survey respondents to rank their feelings about how highly they value saving for retirement. As may be expected given these results, college-educated black workers valued saving more highly, with an average score of 4.19 compared to 3.79 for Caucasian workers.

What This Means

This means that the reported gap in retirement savings between Caucasian workers and Black workers can mostly be attributable to lower income levels for black workers compared to white workers. When black workers are similarly educated on retirement savings, our survey indicates that they are actually more likely to save a higher portion of their income than white workers.

This also serves to dispel stereotypes that white workers are somehow more thrifty or responsible with their retirement savings than their black counterparts. On the contrary, it appears that black workers are every bit as retirement savvy. Gaps in savings should therefore be addressed with education and reductions of the “wage gap” which is very significant as black workers earn approximately 25% less than white workers overall, according to the Federal Reserve Bank.