Startling retirement statistics: Are you one of them?
January 2, 2020
By Martha Sullivan, CPA, CVA/ABV, CM&AA, CEPA
Partner, Succession Planning Practice Leader
Martha leads HK’s succession and exit planning services division and is a regular contributor to Wisconsin’s InBusiness digital magazine.
With the holidays in our rearview mirror, let me ask you a question. How much time did you spend preparing for your celebrations with family and/or friends? Did you think about a strategy for the season — what it would look like, how you would spend your time, what you would spend resources on, and what your budget was? (Days of the stocking-stuffer savings accounts come to mind.) My guess is that your answer is a resounding, “Yes! Of course, I planned stuff out. I did all of it and had fun!”
Now, think about how much time you’ve spent planning and saving for your retirement? Most of us spend more time each year planning for the holidays or a week-long vacation than we do planning for the last third of our lives. The implications of this trend are truly startling and troubling.
According to the recently released comprehensive retirement survey of American workers released by the Transamerica Center for Retirement Studies (19th Annual Transamerica Retirement Survey), savings held in retirement plans are wholly inadequate. The survey included responses from nearly 5,200 individuals, ages 18 and older, who were employed in a for-profit company with one or more employees. The age demographics included 29 percent baby boomers, 29 percent Generation Xers, and 42 percent millennials.
- Across all households, the median savings in the household’s retirement account was $50,000.
- Age demographics clearly influence the data. The survey cites:
- “Baby boomers have the highest total household retirement savings with $152,000, more than twice as much as saved by Gen Xers ($66,000) and more than seven times as much as saved by millennials ($23,000) (estimated medians).
- Additionally, 39 percent of baby boomers have saved $250,000 or more in all of their retirement accounts, compared with 24 percent of Gen Xers and 12 percent of millennials. In contrast, 25 percent of millennials have saved less than $5,000 in retirement savings.”
- Perspectives vary on what amount should be adequate for retirement savings. According to the survey, “millennial workers believe they will need to save $400,000 (median) to feel financially secure during retirement, less than Gen X or baby boomer workers who believe they will need to save $500,000 (median).” Considering that private-pay long-term care can cost $75,000–$100,000-plus per year by itself, these median amounts seem woefully low to me.
- Rainy day funds vary. According to the survey, 32 percent of the respondents have an emergency fund of less than $5,000. Eighteen percent have less than $1,000 to cover basic yucky life expenses like car repairs, major medical bills, home repairs, or setbacks in employment. Thirty-one percent weren’t sure what they had. “Median savings are relatively low across generations, including millennials ($2,000), Gen Xers ($5,000), and Baby Boomers ($10,000). Twenty-four percent of millennials, 18 percent of Gen Xers, and 10 percent of baby boomers have saved less than $1,000. In contrast, significantly more baby boomers (26 percent) have $25,000 or more in emergency savings.”
- People share concerns about whether Social Security will be available to them.
- “Three in four workers (77 percent) are concerned that Social Security will not be there for them when they are ready to retire.”
- Not surprisingly, four in five millennials (80 percent) and Gen Xers (84 percent) are concerned that Social Security will not be there for them when they are ready to retire. Only 65 percent of baby boomers, most of whom are already qualifying for Social Security, share this concern.
While Exit Stage Right often focuses on topics concerning business owners, this is an issue for us all. This hits home, literally and figuratively. It raises many questions for each generation, ranging from whether family members will be able to remain financially independent into retirement — or will Junior and/or Mom become the new boomerang kid and move in with you — to how we afford to cover the expenses that inevitably come up.
The solutions are complex but share common denominators:
- Stop kicking the can down the road. This may also be known as procrastination, denial, laziness, avoidance, neglect, and sitting on the fence. You’re only hurting yourself by not paying attention to having (and pursuing) a plan for your financial well-being.
- Understand the current circumstances. Where are you at? What are your annual earning spending patterns? What in the current patterns could or should change? What are you deferring into a retirement plan or other savings and tax-advantaged programs?
- Develop your plan of where you want to go — near term and long term. Set your goals and revisit them and your progress at least once a year. Identify steps you need to take to change or enhance the current patterns. Hold yourself accountable to following your plan and taking those steps.
- Start the conversations about what this means for you and your family members. I recognize that discussion about financial matters are highly sensitive and personal, but that doesn’t negate the value in having the conversations, nonetheless.
As you kick off the new year, make this the decade for your future. Develop your financial plan, adjust your savings strategy for the long game, and create and be your best self.