Retirement planning is crucial to ensure financial security in one’s later years. With life expectancies rising, people are spending more years in retirement. It’s important to have adequate savings and income to cover expenses for what could be three decades or more without a regular paycheck.
What is the average retirement savings for Americans?
According to the 2020 Survey of Consumer Finances from the Federal Reserve, the median retirement savings for American families is $65,000. The mean is higher at $417,400. However, that number is skewed by high-net-worth households. For those between the ages of 55-64 who are nearing retirement, the median rises to $134,000.
Retirement savings include things like 401(k) plans, IRAs, and defined benefit pensions. About 50% of families have a retirement account. But the balances vary significantly across income levels. Those in the top income quintile have over $400,000 saved while those in the bottom quintile have less than $10,000.
Average 401(k) Balance
The average 401(k) balance at the end of 2020 was $129,300, according to data from Fidelity Investments, though that was largely driven upward by high-balance accounts. The median was only $27,830. For those aged 55 and older, the average balance was $279,100 and the median $82,000.
Average IRA Balance
The average IRA balance at the end of 2020 was $135,777. The median was much lower at $28,916, according to Vanguard data. For account holders aged 60 and older, the average was $239,242 and the median $63,429.
How much income does the average retiree have?
Retirees get income from several sources. For most retirees, Social Security provides the largest share. The average annual Social Security benefit in 2021 was $18,129. The maximum benefit for someone retiring at full retirement age in 2021 was $31,640.
Retirement plan withdrawals and pensions provide additional income. According to the Bureau of Labor Statistics, the mean retirement income from pensions and annuities for people aged 65+ in 2020 was $16,872 for men and $10,963 for women.
Many retirees also have earnings from working. About 28% of Americans aged 65-74 were still participating in the labor force either full or part-time, providing additional income.
Adding up all sources, the median total income for American households led by someone aged 65-74 was $50,800 in 2020. For 75 and older it drops to $30,288. However, there is high variability based on pensions, assets, and other factors.
Income Replacement Ratios
Financial planners often recommend replacing 70-90% of your pre-retirement income to maintain your standard of living. However, research shows many fall short of that target. An analysis by the Center for Retirement Research found the median replacement rate for retirees in 2020 was 52%.
How do retirement savings and income vary by education and race?
There are significant racial and educational divides when it comes to retirement preparedness. According to the Survey of Consumer Finances, white families have over 6 times more median retirement savings than Black families and 5 times more than Hispanic families. College-educated families have over 7 times higher retirement savings than those without a degree.
| Race/Ethnicity | Median Retirement Savings |
|---|---|
| White | $73,000 |
| Black | $12,000 |
| Hispanic | $14,000 |
| Education | Median Retirement Savings |
|---|---|
| College degree | $88,000 |
| High school or less | $12,000 |
There are also disparities when it comes to retirement income. According to the BLS, the mean retirement income from pensions and annuities for households aged 65+ was $22,858 for white households, $15,109 for Black households, and $11,550 for Hispanic households in 2020.
Conclusion
The majority of Americans are falling short when it comes to retirement savings. While some have sizable nest eggs, median balances tend to be far below averages due to high levels of inequality. Many baby boomers are now reaching retirement with low savings and will rely heavily on Social Security. Workers today need to be diligent about saving in 401(k)s, IRAs, and other accounts to be prepared for potentially decades of retirement.