A report issued by the National Institute on Retirement Security, a nonprofit think tank located in Washington D.C., has revealed that the economic recovery following the 2008 recession has substantially impacted retirement savings. The study found that 57% of working Americans are without any type of retirement savings, whether through an employer’s 401K plan, a personal account, or pension plan. Four out five Americans have less than one year’s salary saved for retirement. These findings show that the majority of Americans are woefully unprepared for retirement.
The data used in the report tracks income and retirement savings through 2014. It found that 73% of 21-34 year olds have no retirement accounts at all. In terms of net worth, the total value of assets owned minus any outstanding debts for 45% of workers aged 21-64 was less than their current annual income.
What do these findings mean for the future?
In short, the study shows that workers will have to increase their retirement contributions to the maximum extent they are able to do so. To counteract any shortfalls, they will need to work longer before retiring, or face drastic downgrades to standards of living during retirement.
With longer life expectancy, rising inflation, and increased costs of living, the majority of people are facing a prolonged retirement, much longer than generations of the past. For those who do have a substantial retirement nest egg saved, they face the risk of spending too much of their savings early on, only to run out of money as time marches onward.
How much saving is enough?
It is hard to know how much retirement savings is enough. The report suggests that the typical employee needs to replace roughly 85% of their pre-retirement income to keep their current standard of living if they retire at age 67, and that does not include medical costs. Following the 2008 recession, financial professionals suggest that 15% of take home pay be diverted to retirement savings over the course of a 40 year career.
Planning is essential
These findings underscore the importance of estate planning, particularly when it comes to net worth and assets. A plan that looks ahead to offset threats to your retirement financial health is essential, whether that be reducing your tax burden, or adjusting your long term medical care plans. Estate planning should have flexibility and a cushion to offset any curveballs thrown your way during retirement.