By Greg Cancelada, Public Affairs Staff
It might happen during a get-together with friends. Or maybe when you’re visiting family. But it will eventually happen. Someone will slowly lean over to you and make a quiet confession: I just haven’t been saving enough for retirement.
It’s a worry that plenty of Americans face. Around 46 percent of adults not yet retired don’t expect to have enough money to live comfortably when they do retire, according to an April 2-11 Gallup poll. When Gallup did a similar poll in 2012, that figure was 55 percent.
YiLi Chien, an economist and research officer at the St. Louis Fed, has been studying the issue to get a better sense of how prepared Americans are for retirement.
Chien and Senior Research Associate Paul Morris examined how much money Americans have stashed away in key retirement accounts, such as:
(They didn’t look at investments held outside of retirement accounts, such as bank accounts or home equity.) The results were sobering. Thirty-five percent of all U.S. households had no money saved in any type of retirement account, according to their analysis of 2016 data. Nada, zilch. For those that did save, the overall balance wasn’t much. The median household held only $1,100 in retirement accounts.
In other words, half of households had less than $1,100 in retirement balances, and half had more than $1,100. Only the top 10 percent of households had savings greater than $310,000.
Of course, those numbers included all households, both young and old. Young adults are just getting started in their careers, so their earnings are relatively low. And they also typically have relatively higher expenses early in life, such as a new car and college education. That means they’re often paying down debt instead of bulking up retirement savings. Scott Wolla, a senior specialist in Economic Education at the St. Louis Fed, provided a good explanation of the “life cycle” model of consumption and saving in a Page One Economics article.
But even adjusting for age didn’t show a huge improvement in Chien and Morris’ research. The median balance for households headed by someone aged 56 to 61—people on the cusp of retirement—was only $25,000 in retirement savings.
It isn’t all doom and gloom. That same Gallup poll also asked retirees a similar question, and 78 percent of retired adults reported having enough money to live comfortably. The polling organization thought there were a variety of possible reasons for a discrepancy between expectations and reality, such as:
In their research, Chien and Morris also acknowledged that looking at only retirement balances may not give a complete picture. Nonretirement assets, such as home equity; financial assistance from family and friends; inheritances; and Social Security may be other support that retirees can count on.
Still, if you don’t want to be among those retirees who reported to Gallup as not having enough money, check out the No-Frills Money Skills series from the St. Louis Fed’s Economic Education team. It’s a quick refresher on personal finance topics, from compound interest to retirement accounts and more.