Americans’ retirement assets continue to grow but there remains a lot of room left for improvement, according to Center for Retirement Research (CRR) calculations using the latest data from the Federal Reserve’s Survey of Consumer Finances. Specifically, the typical U.S. household nearing retirement (ages 55-64) with 401(k) and IRA assets had $135,000 in total holdings last year, a 22 percent increase from 2013. However, that larger nest egg will still only be able generate about $600 per month in retirement income, based on CRR estimates, a sum that is also at risk of seeing its purchasing power slowly eroded over time by inflation. Perhaps more alarming is that the $135,000 figure only applies to older Americans with 401(k)s and IRAs, meaning that there are lots of near-retirement households that do not have any assets in these tax-advantaged savings vehicles.
As a result, many people are likely to depend heavily on their Social Security benefits in old age, another problem given the uncertainty surrounding the long-term sustainability of this government program. For younger Americans, though, there is still a lot of time (and compounding investment returns) on their side, along with some encouraging evidence that these individuals are already taking the rights steps to ensure a comfortable and financially secure retirement. A new Bankrate survey, for instance, found that 60 percent of Millennials who are limiting how much they spend each month are doing so in order to set money aside for the future. Further, a Transamerica study revealed that Millennials started saving for retirement at a median age of 22, much earlier than Baby Boomers (35) who were in many cases already mid-career when 401(k)s were first introduced. Moreover, the continued rise in the adoption of automatic enrollment and auto-escalation are helping younger generations take full advantage of their employer-provided saving tools and in turn be better prepared for retirement.
Sources: Boston College, FRBG, Squared Away, Bankrate, TCRSPost author: Charles Couch