The Scary Facts of Retirement Saving

According to the Government Accountability Office (GAO), the median retirement savings for most Americans in the decade preceding retirement (age 55-64), wallows in the neighborhood of $100,000.

Scary Facts

The median retirement savings for most Americans in the decade preceding retirement (age 55-64) wallows in the neighborhood of $100,000, according to the Government Accountability Office (GAO). Despite all of those zeroes, it’s a frighteningly inadequate number, if accurate – a dollar figure that will exhaust quickly in retirement. Particularly if you live a couple or so decades after retiring… as many people do.

The same GAO study revealed that during the 10 years after retirement (age 65-74), the amount on hand was around $150,000. In short, even accounting for inflation-adjusting Social Security checks, most Americans enter the Golden Years with woefully meager nest eggs. Holy Moly! Captain Marvel, how do all of these Baby Boomers and Generation-X folks plan to survive 15-25 years of those relentless day-to-day expenses in addition to mounting healthcare costs?

These startling GAO numbers are supported by some median net worth numbers cited in a Business Insider article by Jim Wang. Of course, retirement savings and median net worth numbers differ in that retirement savings is a component of net worth. Point is, the Business Insider article’s numbers support the accuracy of the GAO numbers (i.e., in the 55-64 age group, Wang’s median net worth figure is $144,000 compared to GAO’s retirement savings number of $100,000. In the 65-69 age group, Wang’s median net worth is $194,000 and GAO’s retirement savings number is $150,000). I cite these statistics to focus your attention on how so very few folks properly prepare for retirement in today’s America.

Too Late? Maybe.

It seems to be a bit late in the game for the older generations to take much corrective action, but what about those in the under age 35 category – the Millennials? No good news here. They hold less than $7,000 of median net worth… wow! And I suspect very little of that $7,000 is truly investable savings. More probably, it’s equity in a home. And what’s my point, you ask? Well, let’s revive one of my favorite old dictums: It’s Never Too Late but Early is Best!

‍Using my usual financial data to make the point, what would happen to these same age categories, had they, at age 20, established a Roth IRA, saved a paltry $100/month, and invested in an Index fund earning 7% compounded quarterly? How would their net worth have been impacted over time?

It appears that in America’s near future, Social Security, a good but terribly underfunded program (refer to A Tottering Stool blog July 26, 2019), will provide most of the income for half of the people over 65. You’ve probably heard the rumors about little old ladies (and little old men) eating cat food to avoid occasional bouts of hunger. The foregoing statistics tell you why that possibility just might exit. By the way, until her untimely recent demise, my cat enjoyed her food, so, maybe it won’t be so bad.

Crisis Avoidance

Despite my witticisms, the foregoing facts are alarming. But they can be avoided. How, you might ask? Simple. Start saving early in life. Certainly, before your mid-40s. If possible, in your early 20s. To which you reply, "But, young people don’t have any money." To which I reply, "Balderdash!"

Like so many of their elders, a preponderance of young folks lack the discipline required to save. And many of them develop those million-dollar habits I mention from time to time, most of which are money-chomping habits. And, too, young people have a litany of excuses not to save, some perfectly understandable and others – well – just handy excuses.

In the next few blogs I will reveal the various generational excuses people use not to save. Remember, these are the same excuses, real or imagined, that wage a holy war on The Amazing Power of Compounding by gutting the act of saving (money) of its most important component, time! We’ll begin next week with the 20-somethings.