By Bob Rothe, CFP®
We are creatures instinctively drawn to comparison. When we find ourselves doing better than our literal or figurative neighbors in a certain area of life, we tend to give ourselves a little gold star. On the other hand, when there’s a part of our life that isn’t quite up to par, we can fall into the belief that the grass will always be greener in someone else’s yard. And while this behavior of constant comparison can be quite harmful in some situations, it isn’t always a bad thing. For instance, comparing figurative apples to apples can provide you with a baseline to gauge if you are on track with things like your retirement plan. The key to healthy comparison is your ability to make sense of the contradictory and overwhelming information available in light of your own unique situation.
With the vast amount of data readily available on the internet today, you don’t have to look long and hard to find more retirement information than you’ll ever need. There is a plethora of advice on when to start saving, what the best strategies are, the amounts you’ll need to get you through your golden years, and everything in between!
Unfortunately, you will also quickly find much of this advice to be confusing, overwhelming, and at times even flat-out contradictory. You read the latest stats, which tell us we need X amount for a 20-year retirement, or that we should contribute X amount to our 401(k). The experts tell us to pay off all of our debt but also make sure we have enough liquidity for emergencies. And while this can all be helpful information, how does it apply best to your own unique situation? With retirement being one of the most significant financial milestones you’ll reach in life, how can you really know if you’re on the right track for you? Can you be sure the plans you have, if any, will get you to the right place at the right time?
Comparing the Numbers
With Baby Boomers retiring every day, the Census Bureau predicts that the population aged 65 and over will grow 50% between 2015 and 2030! Realizing this significant jump, the U.S. Government Accountability Office was tasked with finding out how well prepared American workers are for retirement. They published a comprehensive report in 2015 that we can use to get an idea of how your retirement savings stack up with your peers.
You may think you’re on top of things, or way behind, but as you read on, you may actually be surprised by what statistics show about retirement savings. Let these numbers serve you as a pat on the back—or a kick in the pants.
If You’re Between the Ages of 55 and 64
It may surprise you, but if you have at least $1 saved for retirement, you’re doing better than 41% of those surveyed, and if you have at least $25,000 saved, you’re in the top 59%. Though those numbers may make you feel good about yourself, they don’t guarantee you a comfortable retirement. While you may not know how much you need for retirement, we can be sure it’s more than $25,000.
Here is a table from the GAO’s report showing how resources are divided between households with and without retirement savings in this age group.
Clearly, those without retirement savings don’t have a lot to fall back on. Since they lack additional resources, they will be dependent upon pension plans and Social Security to carry them through their retirement years. Of the 59% that have saved, the median nest egg is only about $104,000. With increasing longevity and healthcare costs, that may not be enough for a worry-free retirement.
In Table 2, you can see how much savers have actually managed to put away. Where do you fit in?
In this age group, it seems that only the very top savers are ready for retirement. Most of them are still working, though. What about those a decade older? How do you compare to those who have already reached retirement?
If You’re Between the Ages of 65 and 74
65 is a popular retirement age, though more and more people are extending this date so they can catch up with their retirement savings. Like the previous age group, this bracket doesn’t have much in savings. Here is a chart showing the exact same information as the previous age bracket.
In this age group, people are a little more prepared but with only a slightly larger nest egg. However, the median net worth has increased and homeownership rates are higher. Let’s look at their savings breakdown.
Surprisingly, the median amount saved is not significantly higher than that among households aged 55-64. It only increases from $104,000 to $148,000. The lower percentiles nearly double their savings. Where do you fall? If you’re in the 90th percentile, you are probably okay assuming modest spending. But what about the lower percentiles?
As we can see, it doesn’t take a whole lot of savings to look good relative to your peers. But don’t let that lead you to believe you’re all set just yet. Instead, examine how your savings are doing relative to your current lifestyle. Do you plan to maintain your current comforts, or even live a more generous and adventurous lifestyle in your golden years? Will you have enough to live the life you want, or do you need to double down and save more?
Your Personal Retirement Goals
At the end of the day, no matter how you compare to your peers, what you really need to realize is how your savings compares to the cost of the retirement you desire. There are plenty of online retirement calculators available that can give you a quick idea, but they are often generic and give universal advice rather than taking into account the various factors that will impact your personal situation.
A good way to get a clear idea of what you’ll truly need to retire comfortably is to enlist the help of a financial advisor who will run a thorough analysis for you. For example, a professional can utilize programs that allow them to show you different possible retirement outcomes and then offer expert advice on how to prepare for both the good and the bad.
How We Can Help
At Wealth Management Group, LLC, our goal is to reduce stress by providing you with a solid financial plan that puts your money to work for you. We are dedicated to helping you pursue a life with fewer worries and more time and resources to devote to your passions. Don’t keep yourself up at night wondering if you will have enough money to retire. Schedule your no-obligation, no-fee consultation today by emailing email@example.com or calling our office at (214) 644-2564. You work hard, let’s make sure you get the retirement you deserve.
About Wealth Management Group, LLC
Wealth Management Group, LLC (WMG) is a Registered Investment Advisor with the Securities and Exchange Commission. WMG is an independent company owned by the advisors. It is not owned by nor is it a subsidiary of any other company. Our professional staff includes four advisors that hold the CFP® (Certified Financial Planner) designation and one who is a CPA (Certified Public Accountant). They have an average industry experience of more than 15 years. WMG specializes in all aspects of wealth management, including wealth protection, wealth enhancement, wealth transfer, and charitable giving. They serve individuals and families in Collin County, the DFW metroplex, throughout Texas, and beyond. Learn more about WMG at www.wealthmanagementgroupllc.com.