Is there a retirement saving crisis in the U.S.? A study recently released by the National Institute on Retirement Security shows we are in bad shape. Retirement saving is dangerously low especially for people without retirement accounts. Let’s take a look at the data.



Wow, we’re officially in crisis mode. The near retirement households are going to be in serious trouble in actual retirement. The median retirement account balance for people 55-64 (who has retirement accounts) is only $100,000. That might sound like a lot of money, but it could be gone in just a few years. What about those folks without retirement accounts? Their median balance is just $12,000. That’s not even close to being enough for one year of retirement.  If you have only $12,000 saved up at 64, then you are going to be in for a very frugal retirement.

It’s a tough situation for the working class. When you’re not making a lot of money, saving for retirement is put on the back burner. I remember when my family immigrated to the US. My parents barely made enough money to pay the bills and they couldn’t save any money for a long time. Today, they don’t have a lot of retirement saving, but their expense is pretty low so it’s not too bad. My dad is still making money from his rental condos and day trading, so they are doing fine for now. They also live in Thailand so their expense is a magnitude lower than here in the US.

The key research findings are as follows: (from NIRS’s website)

  • Account ownership rates are closely correlated with income and wealth. More than 38 million working-age households (45 percent) do not own any retirement account assets, whether in an employer-sponsored 401(k) type plan or an IRA. Households that do own retirement accounts have significantly higher income and wealth—more than double the income and five times the non-retirement assets—than households that do not own a retirement account.
  • The average working household has virtually no retirement savings. When all households are included— not just households with retirement accounts—the median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households. Two-thirds of working households age 55-64 with at least one earner have retirement savings less than one times their annual income, which is far below what they will need to maintain their standard of living in retirement.
  • The collective retirement savings gap among working households age 25-64 ranges from $6.8 to $14 trillion, depending on the financial measure. A large majority of households fall short of conservative retirement savings targets for their age and income based on working until age 67. Based on retirement account assets, 92 percent of working households do not meet targets. Under broader measures, most households still have insufficient assets: 90 percent fall short based on retirement account balances and estimated DB pension assets combined, 84 percent fall short based on total financial assets, and 65 percent fall short based on net worth.

All right, so we see that the average household isn’t doing very well in the retirement saving department. However, I’m sure that anyone who is reading Retire by 40 is way above average. All you need to do is max out your 401k and Roth IRA contribution for a few years and you’ll be way above average for your age range. That’s easy to say, but not everyone can do this.

What if you really can’t save for retirement?

Of course, it would be much better if you stashed away a million dollars in your retirement account, but many of us can’t do that. I’m not convinced it’s the end of the world. People all over the world retired with much less than $100,000 saved. Let’s brainstorm a bit and see what alternatives there are.

  • Make money doing something you enjoy – If you can make money doing something that you enjoy, then you probably don’t need as much retirement saving. You can keep doing what you like and you’ll have some income to cover the expenses. Ideally, this should be self employment so nobody can fire you.
  • Build up multiple streams of income – Some people don’t have much money in their retirement accounts, but they have other ways to generate income. Rental properties, dividend stocks, and peer to peer lending are just a few ways to generate some income. There are also many other part time gigs such as house sitting, dog walking, mystery shopping, and blogging that could make some money when you have more time.
  • Drastic cost cutting – This is a great option that most Americans rule out. You can have a great retirement in South America or Southeast Asia with a very modest budget. In fact, I plan to do just this when Mrs. RB40 quits her job. We can explore new cultures and scenery while saving money. This is 15 years out though so we’ll see if it pans out.
  • Leverage your family – If you can’t count on family, who could you count on? Raise your kids with family values in mind and you can count on them to help you out when you’re older.Combining households is a great way to save money for everyone and it’s also really nice for kids to know their grandparents better.

So yes, we do have a crisis on our hands, but by good planning and taking steps toward saving, you can put away more for retirement. However, if you’re older and behind on your saving goals, then you may have to be more flexible and think creatively.

What would you do if you’re 65 with only $12,000 saved? 

If you need help keeping track of your finances, try using Personal Capital to manage your budget and net worth. It can help you keep track of your income, expenses, and net worth, all in one place. Personal Capital is geared for investors and has many great tools.

Via Retire by 40