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Workers Saving too Little (Does This Surprise Anyone?)

By JLP | March 19, 2013

From today’s WSJ

Fifty-seven percent of U.S. workers surveyed reported less than $25,000 in total household savings and investments excluding their homes, according to a report to be released Tuesday by the Employee Benefit Research Institute. Only 49% reported having so little money saved in 2008.

I found the report and thought this graphic that breaks down savings by age group was troubling:

EBRI 2013 Retirement Confidence Survey Results

Only 42% of those 55 and over have a $100,000 or more in retirement savings. Wow! What kind of retirement, if any, can they (or the other 58%) plan on having?

Even worse is the fact that a lot of people have no idea how much they will need during retirement. Here is a quote from one part of the report:

Forty percent of all workers think they need to accumulate at least $500,000 by the time they retire to live comfortably in retirement. Twenty-one percent feel they need between $250,000 and $499,999, while 29 percent think they need to save less than $250,000 for a comfortable retirement…

Consider this:

A lump sum of $250,000 placed in a 20-year fixed immediate annuity with a 3% to 5% interest rate, will produce an annual income of $16,000 and $19,000. Even combined with social security income, that’s hardly a comfortable retirement.

Thoughts?

Topics: 401(k), Retirement Planning | 11 Comments »


11 Responses to “Workers Saving too Little (Does This Surprise Anyone?)”

  1. Money Beagle Says:
    March 19th, 2013 at 10:08 am

    It’s not surprising given everything that you hear and how little people actually have saved up. Looking at the chart, we’re in the 35-44 range and in the $50k-75k range, so I guess that’d put us somewhere around the 70th percentile. I wish it were a bit higher but I’m good with that especially since we have no credit card or consumer debts, all we have is a student loan and a mortgage.

  2. philip Says:
    March 19th, 2013 at 11:07 am

    I read too many financial bloggers sites that make me seem like I am way way behind with being in the $50k+ and in 25-34 age range. Only 9% over that range so I guess I am better than I feel sometimes.

  3. JLP Says:
    March 19th, 2013 at 11:25 am

    Philip,

    I agree. There needs to be some balance. My main goal is to get people to start early, save what they can, and make saving a priority. It would be rare that a person would take this advice and be disappointed 15 – 20 years down the road.

  4. Kate Says:
    March 20th, 2013 at 4:56 am

    Most of the people I know spend it as fast (actually faster) than they make it, no matter their income. One family I know had a $200K income for many years, with not that large of fixed expenses yet took out a home equity loan for a house repair. They frequently bought new autos but when unemployment hit they still had a mortgage and no savings (in their mid-50s) despite living in the house for twenty years. OUCH!!!

  5. jon Says:
    March 20th, 2013 at 8:47 am

    I live off of $20k a year with 3 kids and a wife that stays at home. We are very comfortable. Granted I don’t want to live at this level all my life I could easily see living with that amount of money when I retire – if the house is paid off (right now we live in a rental @ $350/month – family owned – that’s how I get it so cheap). Of course, I’m going to “school” as I learn programming – with an electrical engineering background.

  6. clocks Says:
    March 20th, 2013 at 10:06 am

    As Kate pointed out, this country has a spending problem. The concept of saving money is foreign to most people. As a saver/investor, I fear what kind of taxes my next egg will face to support those that can’t support themselves years from now.

  7. Sam Says:
    March 20th, 2013 at 4:47 pm

    http://blogs.the-american-interest.com/wrm/2013/03/20/us-retirement-in-crisis-let-the-boomer-exodus-begin/

    Walter Russell Mead’s take on the retirement savings problem.

  8. BG Says:
    March 21st, 2013 at 5:03 am

    I dislike studies on networth that “exclude homes” about as much as I dislike studies on tax burdens that exclude “payroll taxes”.

    A study that is excluding a lot of folks’ primary savings/taxes/whatever is cherry picking and intentionally trying to mislead the reader.

    If I pay an extra $1k towards my mortgage this month, it is just as much “savings” (if not more so) as someone else putting their extra $1k into a 401k instead.

  9. Matt Says:
    March 21st, 2013 at 7:50 am

    Not surprising at all – the question I’ve got is did this report take into account things like debt load or having your mortgage paid off?

    What about company pension plans? (this would really off set missing retirement savings).

  10. Miguel Says:
    March 24th, 2013 at 5:11 pm

    Who knows what to believe with these studies. The stats seem to be all over the place and really depend on exactly how the publisher wants to spin the story. I do think a lot is left out of these stats, as others have pointed out. Home equity is important. Yes, you need a place to live when you retire, but no, it does not have to be the place you live in today.

    Also, they do not account for non-retirement savings, or pensions. I might be the exception to the rule, but I try to save somewhat more than I can fit into a 401K account each year. My non-retirement savings and investments have far outstripped my IRA’s and 401K savings.

    And folks with real pensions share a close relationship to lotto winners. I love how some of my retired, govt pensioned acquaintances like to whine about how “rich” folk like me ought to be happily paying more in taxes. Lemme think here…. they retired in their 50’s, own valuable homes, usually on top of a vacation home, nice cars, etc. Who are the rich ones in this picture??? They are what I can pension-millionaires – it would take over $1mm to reliably generate their pension income over their expected lifespan. And yet they have the luxury of considering themselves “poor”.

    At any rate, I have to say that anecdotally speaking, when I look around at family and friends, I sometimes think the world has gone completely mad when it comes to money. People are spending like there is no tomorrow, wondering how they’ll ever retire, and complaining about how stretched they are.

    And they have bought hook line and sinker the populist notion that their state of affairs is due to having somehow been victimized by the big bad corporations in cahoots with all the big bad rich boogeymen. Someday…. the little peoples will rise up and “take back” what was stolen from them.

    Yes, I actually had a relative say something like that to me over the holidays. When I pointed out to said relative that by income, they themselves were actually in the upper 10% of the population, so when the revolution comes they might do well to run and hide too, they gave me a stare of complete confusion. You see, they live in a wealthy community so have little grasp of reality. They’re “poor” on a six-figure income.

    This was going to be the topic of a post that I never got around to finishing. I will have to dust it off, now that you guys have got me started!

  11. LAL Says:
    May 6th, 2013 at 12:53 pm

    Interesting. But including home equity would skew it wouldn’t because in HCOLA people would have very high net worths if they put down 20% like us and it was $120k DP. Then paid off the home. Personally we’re the 25-34 group 2%

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