Nearly Half of Americans Have Saved Only $25,000 For Retirement

Americans’ confidence in having adequate money to retire on has hit a 20-year low, according to a survey by the Employee Benefits Research Institute (EBRI).  “We’re getting the most pessimistic results we’ve ever seen,” said Jack VanDerhei, EBRI’s research director and the study’s co-author.  “Those that are not well prepared are finally starting to get it.  The bad news is they’re not really reacting to it yet,” VanDerhei said.  “Hopefully this will be something that in the future will generate more savings.  People were shell shocked to some extent by what was going on in 2008 and 2009,” said VanDerhei.  “Many people wouldn’t even open their 401(k) statements when they came every quarter because they were too afraid to look.”  Now these same people are determining if they have adequate money saved.  This pessimism is despite the fact that the average balance of a 401(k) account rose to $71,500 at the end of 2010, an increase of approximately 11 percent when compared with 2009, according to Fidelity Investments.

Approximately 27 percent reported that they have little confidence about the amount of their retirement savings, an increase over the 22 percent reported last year.  The increase was driven by people with less than $100,000 in savings, according to the report.  The percentage of those with less than $25,000 in savings who lack confidence about having enough money in retirement soared to 43 percent in 2011, an increase from the 19 percent reported in 2007.  Five percent reported that their savings totaled more than $100,000, about the same as 2007.  Nearly 1,000 workers and 250 retirees aged 25 and older were interviewed for the survey.  EBRI has conducted the survey since 1990.

High unemployment rates, the size of the federal deficit, rising healthcare costs, lower returns on investment and worries about Social Security and Medicare funding have forced Americans to redefine retirement, VanDerhei said.  Regulators and legislators are examining the risk of Americans outliving their savings as life expectancies increase and funds have shifted from traditional pension plans to defined-contribution plans such as 401(k)s.  The Labor Department is examining whether it should be easier for employers to add annuities to retirement accounts.  Senator Jeff Bingaman (D-NM) re-introduced legislation that would require 401(k) plan sponsors to inform workers of the projected monthly income they can expect at retirement based on their current account balance.

Not all the news in the EBRI study is bad. “In the past, investors in general were clueless about how big of a nest egg it takes to accomplish their goals,” said Harold Evensky, a Coral Gables, FL, financial planner.  “The silver lining of going through a bad economy is that people are substantially more realistic about what they need to do.”  Although the majority of people have not yet made major changes, at least 62 percent say it is possible for them to save $25 a week for retirement. One expectation may need to be adjusted.  Among the 1,004 workers surveyed, 74 percent plan to work in retirement to supplement their savings, but just 23 percent of the 254 retirees surveyed say they have worked in retirement.

Tools are available online to help Americans saving for retirement determine how far they are on the road to financial stability.  Generally speaking, financial planners suggest putting away between 11 and 15 percent of each paycheck for retirement.  Additionally, the Department of Labor’s website has a section called “Top 10 Ways to Prepare for Retirement”.