The Retirement Savings Crisis: Buck the Trends in Retirement Savings

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The sad truth is that most working-age U.S. households are nowhere near ready for retirement. According to The National Institute on Retirement Security (NIRS), the median retirement account balance for working-age American households is only $3,000.

Even most Americans who are close to retiring are woefully unprepared, with a median retirement account balance of only $12,000. Nationally, the NIRS has calculated the retirement savings deficit in the U.S. is between $6.8 trillion and $14 trillion.

Living Longer, Retiring Younger

Statistics reveal that Americans are living longer on average and retiring younger. Even though this is generally positive, it’s contributing to the retirement crisis. For example, if you retire at age 60 instead of 65 and live to age 85 instead of 80, that’s an extra 10 years in retirement that you need to fund.

Many young people are in even more retirement trouble. Among households that have retirement savings accounts, those aged 25-34 have saved a median amount of $13,000. While this looks better than the overall $3,000 median retirement account balance, remember that many young people have large student loan balances to pay off.

In fact, more than half (66 percent) of students graduating from public colleges have average student loan debt of $25,550. With this kind of student loan debt hanging over their heads, it’s no wonder that many young people put off saving for retirement.

Many of their parents, meanwhile, are not shifting their focus to retirement savings after their kids leave home. While you might assume that parents would beef up their retirement savings after their children fly the coop, this isn’t always the case.

As reported in The Wall Street Journal, Alicia Munnell, the director of Boston College’s Center for Retirement Research, conducted a study in which she found that instead of saving for retirement after their children leave home or graduate college, parents tend to splurge on things like going on a dream vacation or upgrading their cars. This helps explain why even near-retirement households on average haven’t saved nearly enough money to retire.

Dealing with Income Shocks

In addition to these factors, so-called “income shocks” are another obstacle to retirement saving for many Americans. The nonprofit National Endowment for Financial Education defines income shocks as an annual earnings drop of more than 10 percent. They occur due to things like losing a job, getting divorced and facing a medical or other major life crisis.

Income shocks are unpredictable and can impact anyone at any point in their life. According to the National Endowment for Financial Education, 96 percent of Americans suffer four or more of them by the time they reach age 70. No one is safe from income shocks, and when they hit, people often dip into their retirement savings to make ends meet.

Since income shocks happen to most Americans, it’s wise to be prepared for them in advance. One of the best ways to prepare is to have a liquid emergency savings account you can tap into instead of your retirement account to get you through the shock. This can go a long way toward being financially prepared for retirement.

Get Ready For Retirement

Two of the main keys to being financially prepared for retirement are: 1) Contributing to a retirement savings plan early and often, and 2) leaving the money alone. For starters, you should participate in a 401(k) retirement plan at work if your employer offers one. 401(k) plans are tax-advantaged so you’ll save on taxes now while saving for retirement later.

If your employer doesn’t offer a 401(k), look into setting up an Individual Retirement Account (IRA) yourself. These tax-advantaged accounts allow you to save money at your own pace while investing in stocks, bonds, mutual funds and exchanged traded funds (ETFs).

And if you own a small business or are self-employed, consider establishing a Simplified Employee Pension (SEP) plan. Any sole proprietorship, partnership, C corporation, S corporation or LLC with at least one employee can establish and contribute up to $55,000 to a SEP this year.

Make Saving Automatic

Once you establish a retirement plan, have a portion of each paycheck automatically contributed to your retirement account. And start saving as early as possible — this will not only help cushion any income shocks that may come your way, but it will also give your money the greatest chance to grow over time.

Please contact us if you have more questions about saving for a comfortable retirement.


The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC's ("Frontier") investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.

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