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I HAVE TROUBLE accepting things at face value. I like to validate information, checking it against several sources. This is especially true when it comes to all things money- and retirement-related. But it’s not always easy to do.
Do Americans tell the truth about how they spend their money? Do they actually know? Does it really take extreme frugality to save for the future, a talent many folks lack or refuse to embrace?
I look around and, on every block, see thriving businesses providing non-essential services. Within a mile of where I sit, I count five coffee shops, not including the Starbucks. Not one block in my town is without a nail or hair salon, and three new fitness centers have opened in the past year.
Where does their revenue come from when we hear that Americans are cash-strapped, can’t save, have modest retirement accounts and are unprepared for financial emergencies? Something doesn’t add up.
No matter where you look, the story is the same. Retirement for many Americans, and perhaps most, will be no bed of roses. While the few individuals who claim to be retired and financially independent in their 30s or 40s grab the headlines, half or more of Americans face a serious financial challenge if they hope to retire and maintain their standard of living.
According to the Bureau of Labor Statistics, 68% of private industry workers had access to a workplace retirement plan in 2021, with 75% of these folks choosing to join. Fidelity Investments reports that the average 401(k) balance for baby boomers is $215,000, while for Generation X—defined by Fidelity as those ages 43 to 58—it’s $145,500.
One survey found that 55% of Gen Xers expect to be able to retire, but 25% aren’t sure. At the same time, they expect to live off their 401(k) balance plus Social Security. Given their current account balances, their retirement may be frugal indeed.
According to MarketWatch, the median amount of savings—excluding retirement funds—of Americans under age 35 is just $3,240, compared to $6,400 for those ages 55 to 64. That means half of Americans have less than these amounts.
How is it possible that half of us reaching our 60s have less than $6,400 outside of our retirement savings? Where did the money go? How would these folks deal with a financial emergency? Just saving the change in your pocket each day over 40 years should result in more.
At the other end of the spectrum are followers of FIRE, the financial independence-retire early movement. They plan to retire in their 30s or 40s by dedicating up to 70% of their income to savings during their working years.
To be sure, these individuals aren’t earning $40,000 a year. Nevertheless, it takes a good measure of frugality to achieve this rate of savings. Not for me. I surely didn’t want to downsize to a hermitage.
I never aspired to retire at 40. Age 67 was fine with me. A 2021 survey says Generation Y—then ages 25 to 40 and often called millennials—hope to retire at an average age of 59. Fidelity says the average 401(k) balance for this group is $44,900. Better get cracking folks.
For Generation X, ages 41 to 56 at the time of the survey, the average planned retirement age is 60. Baby boomers, ages 57 to 75 at the time, indicated they plan to work longer, with an average expected retirement age of 68.
Overall, workers looking ahead to retirement expect to step away from work at age 65, according to the Employee Benefit Research Institute’s 2023 Retirement Confidence Survey. Yet, while 65 is the anticipated median retirement age among those still employed, retirees reported leaving the workforce at a median age of 62, the survey found.
How accurate are the data regarding saving, retirement expectations and spending, especially when collected through surveys? Does anyone know? When I double-check the claims, my conclusion is those in the workforce hope for the best but are in denial about what it takes to get to retirement.
Oh well, at least all that’s behind me.
Richard Quinn blogs at QuinnsCommentary.net. Before retiring in 2010, Dick was a compensation and benefits executive. Follow him on Twitter @QuinnsComments and check out his earlier articles.
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From my view, most people don’t know how they spend their money. I’ve talked to people at lots of levels of incomes, and they all kind of spend the same, that is, spend almost all of it, no matter what the income is.
For myself, I’ve lived well below poverty line and now well above. We have always given and saved the whole time, though it certainly is easier to save more now than before, but we’ve never not had enough to withstand at least some kinds of emergencies.
I’m always shocked when I hear of co-workers at high incomes who still live paycheck to paycheck…
And the main guy I talk to in my town about retirement savings is one of the lowest earners I know – but he still saves.
Well said.
“How would these folks deal with a financial emergency?” I know how extended relatives do. They turn to the only responsible saver around – i.e. me – to save the day. Meanwhile they all have nicer phones, appliances, cars, vacations, nails, etc than I do.
Not counting those hard hit by illnesses, job loss or other tragedies not of their making, there’s quite a few folks with a big sense of entitlement these days. Many just assume government or family will bail them out.
Richard, thank you so much for this article. I was especially struck by your line “I look around and, on every block, see thriving businesses providing non-essential services.” Classic!
Allow me to share a few thoughts on some of your other note-worthy lines:
“Just saving the change in your pocket each day . . .”
I would guess our younger generations are a near-cashless culture. I have always wondered how the ease of electronic spending and the lack of the tangible release of money impact our spending.
“. . . my conclusion is those in the workforce hope for the best but are in denial about what it takes to get to retirement.”
I am sure some are in denial, but there are so many other culprits.
I recently set down with my kids and their spouses to explain, and literally give pictures of, the impacts of inflation. Until very recently, they had never seen inflation, much less thought about what it means for the long haul.
From the Boomers to new generations, has any generation come into adulthood with a wide-spread education in personal finance? I have not seen it (except in my dreams). How far back in history would we need to go to find such a generation? I have no idea.
Again, thank you for another great article.
Thank you, I appreciate your comments.
The answer is in your article “half of us.” We live in a bifurcated society, the have’s and have not’s. The well off are generally very well of and the poor tend to be really poor. Our observations of the world around us are skewed. The rich are visible. But the poor are generally invisible. We follow the high housing prices in SF, NYC, Miami, but overlook the extremely inexpensive housing in AL, WV as well as in other “unpopular” parts of the country. I remember way back in college, the student parking lot was full. Me with no car, I thought “dang, all the other students are rich and I am poor.” In reality, a vast majority of students were like me, but having no cars, we were invisible. I travel across the US and notice giant RVs towing full sized truck for God’s sake (like he cares about gas mileage). While blithly passing whole neighborhoods of shanty towns. All these thousands of immigrants pouring over they border, all add to the poor lower class, some (or there decendents) will eventually move up, but most will stay in the lower “half of us.”
Anthony, you describe our country as bifurcated into one half that is generally very well off and another half that is poor. You conclude with the notion that immigrants and their descendants will mostly stay in the “lower ‘half of us.’”
No matter what the news media says, there is still a very large middle class in this country, and there is much movement up and down the income levels.
Allow me to take your bifurcation view and change it to a quintile view. In that case, we would have 20% that are well off, 20% that are poor, and 60% in the middle. I think, at the minimum, most of the people in that 60% would benefit from Richard’s article. Heck, I started out in that bottom quintile, and using advice similar to Richard’s article, I moved up a few notches.
I know exactly what you mean about RVs. Drove across the country last fall. By definition there will always be a lower half, but it doesn’t have to be the same family decade after decade.
A significant part of our economy depends on the purchase of non-essential goods and services. Not only non-essential, but often useless – impulse buys, things that are “cute”, vacation mementos, and other knick-knacks. This also includes the things we optimistically think we may actually use one day but never quite get around to.
Look around stores that you frequent and notice the things that don’t serve a real purpose. That’s the case even with many stores that started out selling essentials. It seems that so much of its shelf space has become dedicated to stuff no one really needs.
If the economy should ever truly tank, and people are forced to cut back spending to real essentials, many of these stores will quickly fail. One has to wonder what will happen to all those people whose income comes from stuff no one really needs, and who finally are forced not to spend money on it.
It won’t really make much difference what their age is, what their planned retirement date is, or what their retirement plan looks like. How to counter that? Fulfilling people’s real needs well should be a foundation objective for anyone starting a career.
Denial ain’t just a river in Egypt.
Great article. I have been wondering same thing. I do agree that you need to live each day and enjoy life. Buy first 10 years are critical to get started with your financial path. Debt right out of the shoot is a killer.
You lost me at hair salons being a “non-essential service.” I can brew my own coffee, but I’m not doing my own hair! I’m guessing that Mrs. Quinn is right there with me, yes?
Oh yes, essential as far as she is concerned. On the other hand, I can still smell the ammonia oder from my mother using a Tony perm kit with little papers and rollers.
So funny, Dick. I bet you remember the Toni Twins too…”which twin has the Toni”.
Within the retirement planning landscape, one feature that has been fraught with confusion has been the lack of identification and standardization of equity portfolios that have produced “maximal” returns and growth over the accumulation stage. This wealth accumulation maximization is important, in that, in the retirement or spending stage, large and unforeseen expenses and economic conditions may arise. Yet, if the saver/investor has made the most optimal investment choices and has produced the maximal portfolio growth, then the regret of having produced a less than optimal wealth accumulation – one that may make the challenge of managing the expenses more difficult – will be reduced.
Academic research shows that the equity asset classes / returns factors that have produced the highest returns over the past 40 / 90+ years have been growth/momentum and small & large value stocks * https://tinyurl.com/2wn5cvm6 . Yet, common financial planning literature and advice may, for example, suggest a portfolio invested in a “Total “World” Stock Market index” or “Total Stock Market index”. However, when comparing the returns and terminal $ accumulation produced by the value/growth/momentum portfolio to the Total World Market index portfolio, the terminal growth produced has been substantial, with the value/growth/momentum portfolio producing an average of double the growth ( rolling 20 year periods since 1986 https://imgur.com/a/GOMZEmW ) – and this with the SAME amount of “risk”. Imagine, for example, an investor entering retirement with $500k versus $1M !
It may be too late for some boomer era investors to change the composition of their portfolios if they’ve resided in portfolios that have produced less than satisfactory wealth accumulation. However, this feature may be quite applicable to younger investors.
* this portfolio can be constructed with a few low expense ETFs through popular and well respected fund product vendors
Momentum premium is hard to take advantage of for long term investing – see https://www.dimensional.com/us-en/insights/myth-busting-with-momentum-how-to-pursue-the-premium. Short term investing is very risky as the market is very volatile, so resembles gambling.
“I HAVE TROUBLE accepting things at face value. I like to validate information, checking it against several sources.” I wish everyone did this. Great article. Did you ever have the inclination to keep working? I don’t see myself ever retiring, even with our nest egg perhaps better than most. I do realize retirement may not be my choice—disability or other family needs.
Actually no, even though I had a position I enjoyed for decades and which gave me tremendous satisfaction. I had worked my way up from mail boy to VP of a S&P 500 company over nearly 50 years. Then personnel changed at the top, the culture changed. The company I knew and helped shape to some extent was gone. It was time to go with no regrets. That was 13 years ago and since, I have seen many of the things I took great pride in, such as employee communications unraveled.
Great answer, I really appreciate it.
Baby Boomers scrimped & saved to own homes, saved and had relatively no debt. Now as they pass on their children are inheriting hundreds of thousands worth of real estate.
They also can avail themselves of a cache load of IRA/Roth & other match by employer savings.
They will spend eagerly for everything they want on their credit cards.
The services industries such as beauty, exercise, boutique anything
are reaping the rewards.
Let’s all retire on a yacht in the South Pacific.
Why the down votes for evie? I don’t see that she/he is factually inaccurate.
Surely retirement on a yacht in the South Pacific isn’t the issue. Is it?
Don’t rule out all the Dollar General’s that keep proliferating. I won’t even go in one of these.
Look into their stock history. It’s ‘every man’s store. Not necessarily ‘cheap’ goods. Name brands are present. I save a bundle regularly!
Actually we go to Dollar Tree fairly often, actually $1.25 now. You can pick up some hefty bargains if you are selective and it’s the only place to buy greeting cards if you are into that.
Greeting card pricing is great at Dollar Tree. Also, my wife just picked up 3 pairs of sunglasses for less than the cost of one pair at Walmart. (She said they looked good too; I defer to her because my sense of style is questionable.) Also, reading glasses are a steal. We have also found that many of their food items are much cheaper.
I’d be cautious of dollar store sunglasses, as they may be not have the 100% UVA and UVB blocking they claim and are required for sunglasses sold in the US to protect eyes from serious UV damage (worse than not wearing sunglasses since pypils dilate whenwearing sunglasses). I don’t know that they don’t, but they have to be cutting cost somehow and bulk grey market direct import might be one thing they do.
“Fidelity Investments reports that the average 401(k) balance for baby boomers is $215,000, while for Generation X—defined by Fidelity as those ages 43 to 58—it’s $145,500.”
And if the average 401(k), 459, IRA, etc. account balance figures aren’t scary enough, look up the even more important median account balances. Those are quite a bit lower.
Yup, it’s all scary. What are people thinking? Was it easier to save 20-30 years ago? I don’t know. Sometimes I wonder if younger generations don’t grasp that their life expectancy and go go years are likely longer than their grandparents. None of my grandparents made it past their sixties.
My father and my two grandfathers died in their 60s. One grandmother died of lung cancer at 72. The other made it to 87. My mom is 81. All in all, I don’t consider longevity to run in my family, but things have changed.
To add to what you said, the younger generation needs not only to understand that they may live much longer…but that their PARENTS, from whom they may expect to inherit, might do so as well. My husband’s grandfather made it to 102! If one or both of us goes into our 90s, our daughters could be well into their 60s before they see any inheritance from us.
DrLefty: “My father and my two grandfathers died in their 60s.”
The most common excuse I hear from younger people who are failing to save is something like, “I don’t need to because I won’t live past…” <insert silly low number that defies demographic reality.>
Of course it’s a form of denial used to an excuse irresponsible behavior.
Income inequality produces strange averages. All the retirees in my circle of friends have substantial fortunes, whether in property or financial assets, but we think of ourselves as normal.
If you average us with thousands of people who have nothing at all, the average is pretty low. But that doesn’t mean there aren’t people who can afford to spend money.
Well, that’s true, the same is true for my friends and condo neighbors. They are well off, but certainly not in the 1% level, but perhaps 10%. I don’t think the top 10% are driving the type of spending I’m referring to though. Americans at all income levels have always existed and made their way. There are many examples of very average Americans who have saved and thrived don’t you think?
The county I live in is mostly blue-collar. The mega-mart where I buy groceries has an attached nail salon opposite the checkout lanes. I am always stunned at what a hopping place it is, and fear most of its customers are the non-savers who drag-down those median savings figures.
In addition to the number of nail salons and pizza joints, I’m amazed at how many various medical providers are in our area. We are in a seasonal community, but the mainland is mostly permanent residents. It may be a reflection of the average age in our county. I’m not sure. It may also be that they tend to cluster near the same area, so maybe it just seems very dense. I’m not sure.
After doing hundreds of mostly senior citizens tax returns over the past 5 years, I’m not sure how I understand how many of them afford retirement. Their incomes are often very modest – SS & maybe a pension, or small IRA distributions. Some friends and relatives share housing. Many live with their children. There is some subsidized housing in all areas of NJ, so that helps some. I compare their incomes to my own, and wonder how they do it. But they seem to make it work.
The lifestyle and living standards that make people happy or at least content can be a mystery, but we tend to forget the people you mention likely had modest lifestyles before retirement.
As you mention, in NJ and other state there are many subsidies that aren’t apparent. NJ has a prescription assistance program and seniors and seniors with incomes up to $150,000 can have property tax increases frozen. That new $150,000 income limit amazes me, there won’t be many 65 year olds paying higher taxes in the future.
I am aquatinted with a couple, about 60 years old, grossing north of 300 k annually, reside in Texas, one adult child. Savings: zero. Debt: about 700,000 large. Retirement account balance: zero. Etc. Ah, but they have a plan: sell the 600 k house and have a bigger house custom built for 900 k. In the works. Then, in ten years, retirement, sell the big house for a huge gain, pay off all debt and live happily ever after. Clearly, Houston, we have a problem.
Meanwhile, my late father, toiled in a machine tool factory for 34 years and never made more than 12 bucks an hour. He retired at 58 with an estate well into the seven figures. He never had as much as a dollar of debt. And he had no idea what his credit score was, it was totally irrelevant. He most likely had no idea what that might be.
I will never understand how middle to upper level earners willingly stay in debt with little to no savings and can sleep at night – I’d be a basket case.
I used to be of the same assumption, but listening to Clark Howard taught me that a number of seemingly unrelated things might be affected by credit score. (Insurance rates, employment screening, rental housing screening, etc.)
I guess as they say, all things are possible or where there is a will there is a way. My parents had no investments, very modest savings, lived with my sister and only income SS. They lived the do nothing style of retirement – their entire life actually.
What you relate is played out all over I believe which is why I find it so difficult to accept the popular excuses for not saving and planning.
Optimism is a good quality to have, but it should be combined with realism. I see the same in healthcare. Most of us live the health lifestyle that pleases us and hope to avoid problems that can be influenced by better health habits. Dick, do you notice a lot of jittery, well-coiffed and well-manicured folks in your town?
Can’t say I’ve noticed. On the other hand my radar clicks when I see long elaborate fingernails and a few thousand dollars in head to toe tattoos.
that’s nothing: check out the cost of hair extensions and weaves: thousands of dollars – and quite a few women wear them. Those things are pricey!
hahaha!