Can You Afford to Retire? - American Society of Employers - Anthony Kaylin

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Can You Afford to Retire?

retirement savingsCan you afford to retire?  Many think not. Bills have to be paid and cash is at a premium, especially in this inflationary time.  Moreover, although many have stayed the course, and over the pandemic saved more, investments have taken a major hit.  Add the fact concerning all the articles predicting the bankruptcy of Social Security (which is unlikely) and the belief by the younger generations that it won’t be there when they reach the age of retirement, there is a strong concern that retirement is a pipe dream.

Take a look at balances reported by Fidelity and Vanguard, two leading 401K providers.

Fidelity Average 401(k) Balances by Age

Age        Average 401k Balance                   Median 401k Balance

20-29                     $ 14,600                                               $ 4,500

30-39                     $ 51,200                                               $18,400

40-49                     $120,200                                              $37,600

50-59                     $206,100                                              $62,700

Vanguard Average 401(k) Balances by Age

Age        Average 401(k) Balance                 Median 401(k) Balance

<25                         $   6,264                                                $  1,786

25-34                     $ 37,211                                               $14,068

35-44                     $ 97,020                                               $36,117

45-54                     $179,200                                              $61,530

55-64                     $256,244                                              $89,716

65+                         $279,997                                              $87,725

(Source: Forbes Advisor 7/1/22)

The numbers, especially the medians, are not promising.  Per Fidelity, workers should try to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67.  Now compare reality with people’s perceptions.  According to a survey released by financial services company Northwestern Mutual, Americans now think their households will need at least $1.25 million in savings to retire comfortably, a 20% jump from a year ago.  And yet they believe they need more money to retire, the average amount in a retirement savings account has dropped this year to $86,869, an 11% decline from 2021, the survey said.

Although the averages appear good, averages may be skewed by outliers. “While it is often thought that with the average, there may be a few big accounts at the high end that are pulling things up, it’s just as true that we regularly have people joining our platform with a zero balance, either because they are just joining the workforce, are just now joining a company that offers a 401(k) or they may have just switched jobs and rolled their 401(k) savings into an IRA,” says Mike Shamrell, vice president of thought leadership at Fidelity Investments.

It may seem good that retirement assets are higher, but assets (like homes, HSAs, and the like) are not income flows.   The income stream that a retired worker should aim for is about equal to 80% of the pre-retirement income, says Steve Sexton, financial consultant and CEO of Sexton Advisory Group, a retirement-planning company.  “For example, if you make $150,000 per year, you should aim to have at least $120,000 per year in retirement to live comfortably in your golden years,” says Sexton.  If the average retired worker receives $1,669.44 each month – about 8% more than Social Security recipients as a whole of $1542.22 as of June 2022, there will likely be a lot to make up for that income stream to meet the rule of thumb.

HR needs to jump on this worker headache by providing financial education to its employees.  It could be a low cost impactful retention tool for employees since many organizations don’t provide this support.  For the training, the 401k providers can be the lead. Some EAPs provide it as well.  Depending on how comprehensive the financial training will be, there are nonprofits and financial advisors that provide a fuller range of training from debt management to retirement planning.  


Source: Forbes Advisor 7/1/22, Wall Street Journal 10/26/22, Yahoo News 11/11/22, Bankrate 8/4/22, Fidelity 8/27/21


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