In order to determine the right path forward, one must know what the different paths look like. For retirement planning, it’s useful, maybe even necessary, to have as much information about the different retirement plans as possible.
In this piece, I’ve gathered all the relevant information on how much Americans are saving for retirement, which accounts they’re using for retirement, and what disbursements might look like.
No discussion about retirement can really begin until we tackle one of the biggest factors in anyone’s retirement planning: Social Security. Here are some quick facts from 2021, per the Social Security Administration.
Compare these numbers to the average Cost of Living for people over 65 in America:
These numbers make it clear that for most retired Americans, Social Security benefits alone are not enough to live on.
Here are some demographic statistics about retirees and Social Security.
These numbers will all be compounded by the projection that the number of Americans 65 and older will increase from 57 million to 76 million by 2035.
Social Security Versus Other Retirement Accounts
As pointed out earlier, the existing Social Security framework is not covering living expenses, and that gap in coverage will only increase as it stands, a substantial number of retired people are already relying on other income.
Individual Retirement Accounts
Among one of the most common ways to plan for retirement outside of Social Security, an IRA allows a person to pay into a retirement account and receive a tax benefit. In a traditional IRA, the income you invest is tax deductible, but your withdrawals at retirement are taxed. In a Roth IRA, this is reversed: taxes are paid before the income goes into investment, but withdrawals are tax-free.
As of 2019:
There are interesting breakdowns of contribution by age and income, as well. It makes sense that the older Americans get, the more they pay toward their retirement, and it also bears out that the more a person makes, the more they contribute.
These data are set against the average income in that same year being just over $72K; (5) this means that the average American is contributing less often, and in far smaller amounts, to their retirement.
Again, this follows logically from how much leftover income lower income brackets have; but it also underscores how much more important it is for the average American to contribute to some form of retirement.
Total Worth of IRAs
Beyond what people are contributing, and how much they are paying in, it is also worth noting just how much Americans have invested, total, into their IRAs.
Another popular retirement planning option for many Americans is the 401(k) model. This model relies on an employer-employee agreement that a certain amount will be withheld from wages, which amount will be matched to some degree by the employer, and the total dollar amount invested in a retirement account.
A leader in 401(k) and other investment plans, Vanguard International released an industry study in 2021, and here are some of their findings.
While the numbers in these data can seem quite large (into the trillions), it is important to remember that they are divisible into the millions (population), resulting in denominations that breakdown into thousands of dollars per year, per person.
For example, if the total amount of 401(k) assets were added to the total amount of IRA assets, divided by each population, we would see:
If we take those numbers, assuming each of the 60 million Americans has both, and will receive the average Social Security Benefit, starting at 65 and continuing on until the life expectancy age of 77 (9), we see the following:
Even if we combined that with the above-mentioned $18,660 from Social Security, we find the total income for a project retiree who benefits from all three Retirement Plans to be $43,450 per year. This still falls nearly $5,000 short of the average expenditures per year of retired persons.
Given factors such as inflation, increasing life expectancy, and the likelihood that an American has a robust IRA and 401(k), it becomes clear that further investments for the average American are needed.