Retirement Readiness

WHAT’S THE STATE of America’s retirement readiness? Here’s a quick look at some worrisome statistics—as well as at some key notions that should concern both those saving for retirement and those who have already quit the workforce:

  • For households approaching retirement age, the typical net worth is $776,000, calculates Boston College’s Center for Retirement Research. That might sound impressive—but 60% of this figure is represented by the value assigned to Social Security benefits, and another 17% by traditional pension plans, which are fast disappearing.
  • You can get a glimpse of America’s retirement readiness from the Federal Reserve’s 2019 Survey of Consumer Finances. Among households headed by someone age 65 to 74, 78.4% owned their home, down from 85.8% six years earlier. Moreover, 70% were carrying some form of debt, including 37.6% who had debt secured by a home. Just 48.2% of this group had an IRA or similar retirement account.
  • Among households headed by someone age 55 and older, 29% had neither savings in a retirement account, like an IRA or 401(k) plan, nor were they covered by a defined benefit pension plan, according to a 2015 Government Accountability Office study.
  • Just 11% of private sector workers were covered by a defined benefit pension plan as of 2017, down from 38% in 1979, according to the Employee Benefit Research Institute. Over this stretch, those in 401(k) and similar plans rose to 46% from 17%.
  • The National Institute on Retirement Security found that a quarter of households headed by someone age 55 to 64 had a net worth—the value of all assets, including their home, minus all debts—that was less than their annual income. By contrast, experts often suggest amassing a sum equal to 8 to 12 times income by retirement, and that sum doesn’t include home equity.
  • Households approaching retirement age had a median $135,000 in their 401(k) and IRA combined as of 2016, up from $111,000 in 2013, according to Boston College’s Center for Retirement Research. That’s enough to generate just $600 a month in retirement income.
  • Even if most folks aren’t in good shape for retirement, presumably some are. How many? Phoenix Marketing International regularly calculates how many U.S. households have $1 million or more in investable assets. Based on a 4% portfolio withdrawal rate, $1 million would give you $40,000 in first-year retirement income, on top of whatever you might receive from Social Security and any pension plans. That should be enough for a comfortable, though hardly lavish, retirement. Phoenix calculates that 8.4 million U.S. households had $1 million or more in investable assets as of 2019. New Jersey, Maryland, Connecticut, Massachusetts and Hawaii had the highest concentration of millionaire households, at more than 9%.
  • According to the Employee Benefit Research Institute’s 2022 Retirement Confidence Survey, workers on average expect to retire at age 65. But it turns out the actual retirement age is typically 62. The study also found that 70% expect to work for pay once they retire, but only 27% of retirees report doing so.
  • Those quitting the workforce in 2022 will spend more than 19 years in retirement, on average, up from less than 14 years in 1970, says Boston College’s Center for Retirement Research.
  • Georgia, Florida, Tennessee, Missouri and Wyoming are the best states to retire, says Bankrate. The ranking is based on five criteria, with the biggest weight given to affordability. Meanwhile, WalletHub says the best states to retire are Florida, Virginia and Colorado, while the worst states are New Jersey, Mississippi and New York. The WalletHub ranking considers affordability, health care and overall quality of life.
  • Social Security retirement benefits average $19,900 a year and replace 37% of past earnings. An estimated 97% of seniors either receive Social Security or will receive it. Social Security benefits provide half or more of the income for 51.8% of folks age 65 and older. For 24.7% of seniors, Social Security accounts for 90% or more of their income.
  • Inflation, which can be a major headache for retirees, ran at 7% in 2021, 1.3% in 2020, 2.3% in 2019 and 1.9% in 2018.

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