I recently read through the March report by the National Institute on Retirement Security. The results presented in the report were not encouraging. It turns out that “the average household has virtually no retirement savings.” There are many interesting statistics in the report, including that only 55% of private sector workers have access to a retirement plan at work. Everyone ought to be saving for their retirement and if you’re not covered by a work retirement plan then you should consider other government-declared retirement accounts like traditional IRAs or Roth IRAs.
However, the most surprising statistic in my mind from the report as a financial planner is that over 45% of all working-age households do not own assets in a retirement account and 80% of working households have less than one times their annual income in retirement savings!
That means that only half of us have retirement savings in a retirement account and only 20% have more than 1 year’s income! AON Hewitt (a large retirement benefits company) recommends a retirement savings target of eleven times your annual income to retire at 65; meaning if you make $100,000 a year you’ll need to have $1.1m set aside toward retirement. Now some people have defined benefit plans at work and combined with their social security benefit they will be able to retire but this points to a bigger problem.
Investors planning on retirement would be better off focusing on their savings and living by a budget than fretting over their investment allocation and portfolio performance. We all could stand to focus on our personal saving and finances, like paying off car loans, credit card debt, getting that 3-6months of expenses into an emergency fund, etc. Once you have your personal financial house in order then you can elevate your savings to longer term but no less important savings like retirement. It seems clear that for the vast majority of Americans, managing your personal finances is one of the most important steps toward a successful retirement.
Visist: http://www.nirsonline.org/storage/nirs/documents/RSC%202015/final_rsc_2015.pdf for the full report.