Who has retirement savings, and how much
Just over half of American households have a retirement account. Among those that do, the typical balance is far smaller than most people expect.
Retirement is the longest planned stretch of most lives, and in many countries it is paid for, in large part, by what people saved while they worked. In the United States, the main tools are workplace plans such as 401(k)s and individual retirement accounts (IRAs). The Federal Reserve’s Survey of Consumer Finances, run every three years, is the best measure of who has them and how much is in them.
The numbers
In 2022, about 54% of US households had a workplace defined-contribution plan, an IRA or both, according to an analysis by the Congressional Research Service.
- Nearly 40% of households had a workplace plan. Among them, the median balance was $53,000 and the average about $225,600.
- About 30% had an IRA. Among them, the median balance was $87,000 and the average about $309,100.
The large gap between the median and the average tells its own story: a minority of households hold very large balances, and the typical household holds much less. The difference by income is stark. About 63% of households earning $150,000 or more had an IRA, compared with under 9% of households earning less than $30,000.
Why the typical balance is small
$53,000 or $87,000 is a meaningful sum, but spread across twenty or more years of retirement it is a modest income. Several things keep balances lower than people expect:
- Starting late. Money saved at 25 has forty years to grow; money saved at 45 has twenty. The difference in the final balance can be several-fold.
- Gaps. Years out of work, years in jobs without a plan and early withdrawals in hard times all interrupt the build-up.
- Changing jobs. Some workers cash out small balances when they leave an employer instead of rolling them over.
- Fees and caution. High fees and holding too much in cash over many decades both shrink the result.
Most American retirees also receive Social Security, which for many of them is the largest source of retirement income. Savings decide how much more than that a retirement has.
Other countries, other systems
Retirement works differently in each of the countries in One Life, and the state pension is the biggest difference. In the US, UK and Germany it starts at 67, or is rising to it; in Japan and Mexico at 65, and in Brazil at 65 for men; in India at 60. How much it replaces of a working wage varies widely between them. India’s state old-age pension is very small, and Nigeria has no general state pension at all: retirement there is paid for by savings, property and children.
Questions people ask
How much should I have saved for retirement? There is no single answer, because it depends on income, the age you stop working and what pension you will receive. Many planners suggest aiming to replace roughly 70 to 80% of pre-retirement income from all sources combined, including any state pension.
Is it ever too late to start? No, though later starts need larger contributions. In the US, workers over 50 are allowed to put extra money into retirement accounts each year for this reason.
What is an employer match? Many US employers add money to a worker’s 401(k) when the worker contributes, for example fifty cents for every dollar up to a set share of pay. Not taking a match means turning down part of one’s pay.
In One Life
In One Life, money is worked out year by year: pay, prices, rent, debts and savings, in the currency of the country you were born in. The state pension, where there is one, starts at that country’s age and pays that country’s amount: Social Security at 67 in the US, nothing in Nigeria. “Spend or save?” and “Take investment risk?” are Life Questions, and the answers are paid for in the last chapters, when work stops and the life lives on what it kept.